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UK public sector borrowing increased by less than expected in July, helped by higher tax revenues, according to new statistics that raise expectations the chancellor could have room for tax cuts ahead of the next general election.
Public sector net borrowing hit £4.3bn last month, £3.4bn more than in July 2022, according to data published by the Office for National Statistics on Tuesday.
However, the figure was well below the £6bn forecast in March by the Office for Budget Responsibility, the UK fiscal watchdog, and lower than the £5bn forecast by economists polled by Reuters.
The ONS reported that the government’s receipts increased £3.4bn from the same month last year to £85.2bn last month, which was well above the OBR forecast.
This was boosted by tax receipts from income taxes, corporation tax and value added tax, which all rose from July 2022, helped by a resilient labour market.
In the first four months of the current fiscal year, borrowing was £56.6bn. That was £13.7bn more than in the same four-month period last year, but less than the £68bn forecast by the OBR.
July’s public finances figures “continued the recent run of better than expected news on the fiscal position”, said Ruth Gregory, economist at Capital Economics.
The figures will be closely monitored to assess whether chancellor Jeremy Hunt has greater fiscal headroom to cut taxes before the next general election.
Commenting on the data, Hunt said: “As inflation slows, it’s vital that we don’t alter our course and continue to act responsibly with the public finances.”
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