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During the last 17 months we have become almost inured to the terrifying increases in government borrowing incurred in grappling with the pandemic.

The government borrowed £303bn during the 2020-21 financial year, a peacetime record, equivalent to 14.5% of UK GDP.

Yet something interesting has been happening during the current financial year.

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Tax burden to reach highest level since 1960s

In each of the first four months government borrowing, while still high, has come in significantly below the levels forecast by the independent Office for Budget Responsibility (OBR).

The latest figures for the public sector finances, published today, revealed that the government borrowed £10.4bn in July.

Make no mistake, this is still a terrifyingly high number, equivalent to borrowing of nearly £233,000 every minute.

It was, however, £10.1bn less than in July last year – and also significantly lower than the £11.8bn that City economists had been expecting.

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The figure means that, during the first four months of the current financial year, the government borrowed £78bn – some £26bn less than the OBR had been forecasting at this stage.

There are a couple of key points to make about the numbers.

London, United Kingdom - July 6, 2016: HM Revenue and customs forms background with British currency coins. HMRC is the department of the UK government that is responsible for the collection of taxes.
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July’s figures are normally boosted by self-assessed tax returns

First of all, July is usually a strong month for tax receipts and therefore the public finances, because it is one of two months in the year – the other is January – in which the deadline falls due for payments by those completing self-assessed tax returns.

It was not unusual, pre-pandemic, for the government to record a surplus during July.

That appears to have been a key factor this month.

The government enjoyed tax receipts of £70bn during July – up £9.5bn on the same month last year.

Behind that was a £3.7bn improvement in self-assessed tax receipts on the same month last year, when HMRC allowed tax payments to be deferred, chiefly to support the self-employed.

But it probably also reflects that the economy is starting to recover.

VAT receipts were up by £1.2bn on July last year, fuel duty was up by £400m – partly reflecting higher petrol and diesel prices – and regular income tax payments were up by £800m.

There was also a big jump in stamp duty receipts, which at £1.4bn were double the level they were in July last year, reflecting a rush to beat the deadline for the end of the temporary £500,000 nil-rate band.

A Person fills fuel at a petrol pump in Liverpool
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Fuel duty was up by £400m

Receipts from corporation tax, which is levied on company profits, also came in higher than the OBR had been expecting.

Secondly, government spending was lower, with the government shelling out £79.8bn during the month.

That was down £2.9bn on July last year and probably reflects that, not only did the government begin to taper away its furlough scheme, but also that there were fewer workers participating in the scheme.

Government spending on the furlough scheme during July was down £4.2bn on the same month last year while spending on the equivalent scheme for the self-employed was down £200m.

Worryingly, though, interest payments on the national debt came in at £3.4bn during the month – up £1.1bn on July last year.

As for the national debt, that stood at £2.216trn at the end of July, equivalent to 98.8% of GDP, which the Office for National Statistics (ONS) said was the highest it has been since March 1962.

The figures were welcomed by Rishi Sunak, the chancellor, who has been spelling out the need to restore order to the public finances.

He said: “Our recovery from the pandemic is well under way, boosted by the huge amount of support government has provided.

Sold and sale signs
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A rise in stamp duty receipts reflected a rush to complete deals before the winding down of a stamp duty holiday

“But the last 18 months have had a huge impact on our economy and public finances, and many risks remain.

“We’re committed to keeping the public finances on a sustainable footing, which is why at the budget in March I set out the steps we are taking to keep debt under control in the years to come.”

That is not to say the chancellor faces anything other than a major challenge on that front.

Isabel Stockton, research economist at the Institute for Fiscal Studies said: “Even if, as recent revisions to economic forecasts suggest, some of this improvement persists the coming Spending Review will still require some very difficult decisions and, most likely, more generous spending totals than currently pencilled in by the chancellor given the myriad pressures on public services and the benefit system following the pandemic.”

That is why the government sought to cut its overseas aid budget by £4bn – but that is a comparatively small sum in the context of overall government finances.

Elsewhere the government has committed to raise public spending by £55bn this year to help clear backlogs in the NHS and in the courts system.

Most economists believe the ultimate bill will be higher.

That is why the chancellor is dropping heavy hints that a rise in state pensions this year under the “triple lock” – whereby the benefit increases by the highest of 2.5%, inflation or average earnings – is not going to happen.

File photo dated 20/10/20 of staff on a hospital ward. The NHS is as stretched now as it was at the height of the pandemic in January and things will get worse before they get better, health leaders have said. Issue date: Tuesday July 27, 2021.
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The government has committed to spending increases to clear NHS backlogs

Were the triple lock to apply, the state pension will have to match the rise in average earnings for May to July which, if as expected comes in at about 8% could cost the Treasury an extra £7bn a year.

Accordingly, Mr Sunak is arguing the lock should not apply.

He can reasonably point out that average earnings growth has been flattered by the fact that, a year ago, it was depressed by pay cuts, mass redundancies and the furlough scheme.

Yet the decision will be politically fraught.

The triple lock was a Conservative manifesto pledge and opinion polls suggest the public opposes scrapping it, even younger voters, despite the intergenerational unfairness implicit in the policy.

Mr Sunak is due already to announce the government’s three year Spending Review this autumn but there is also currently speculation in Westminster about the timing of the next budget.

Some Treasury officials would rather, it is said, have an early budget to nail down the government’s spending and taxation plans for the coming year in order to prevent the prime minister from making outlandish spending commitments ahead of the COP26 summit in November.

Others would prefer to postpone the budget until spring next year so the chancellor can better assess the strength of the recovery and the lasting damage done to the economy by the pandemic.

Library file 3406-3 dated 6.4.78 of former Chancellor of the Exchequer Denis Healey in the Treasury.
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It is arguably the most challenging situation any chancellor has faced since, Labour’s Denis Healey in 1976

That happened last time when the budget was pushed back from autumn last year to March this year.

Making the chancellor’s job much harder would be an earlier than expected rise in interest rates.

This is due to the way the Bank of England’s asset purchase programme – quantitative easing in the jargon – works.

When the Bank buys a government bond, it credits the account of the seller, who effectively receives a deposit at the Bank.

These are known as “reserves” and the Bank pays interest on those reserves at Bank rate – currently 0.1%.

It means that the cost of QE rises if interest rates do.

All of this adds up to the most challenging situation any chancellor has faced since, arguably, Labour’s Denis Healey was forced in 1976 to seek a bail-out from the International Monetary Fund and possibly since the war.

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Ryanair urges EU chief to ‘quit’ over air traffic strike disruption

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Ryanair urges EU chief to 'quit' over air traffic strike disruption

The boss of Ryanair has told Sky News the president of the European Commission should “quit” if she can’t stop disruption caused by repeated French air traffic control strikes.

Michael O’Leary, the group chief executive of Europe’s largest airline by passenger numbers, said in an interview with Business Live that Ursula von der Leyen had failed to get to grips, at an EU level, with interruption to overflights following several recent disputes in France.

The latest action began on Thursday and is due to conclude later today, forcing thousands of flights to be delayed and cancelled through French airspace closures.

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Mr O’Leary told presenter Darren McCaffrey that French domestic flights were given priority during ATC strikes and other nations, including Italy and Greece, had solved the problem through minimum service legislation.

He claimed that the vast majority of flights, cancelled over two days of action that began on Thursday, would have been able to operate under similar rules.

Mr O’Leary said of the EU’s role: “We continue to call on Ursula von der Leyen – why are you not protecting these overflights, why is the single market for air travel being disrupted by a tiny number of French air traffic controllers?

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File photo dated 02/09/22 of a Ryanair Boeing 737-8AS passenger airliner comes in to land at Stansted Airport in Essex. Ryanair has revealed around 63,000 of its passengers saw their flights cancelled during last week's air traffic control failure which caused widespread disruption across the industry and left thousands of passengers stranded overseas. In its August traffic update, the Irish carrier said more than 350 of its flights were cancelled on August 28 and 29 due to the air traffic contr
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Ryanair has cancelled more than 400 flights over two days due to the action in France. File pic: PA

“All we get is a shrug of their shoulders and ‘there’s nothing we can do’. We point out, there is.”

He added: “We are calling on Ursula von der Leyen, who preaches about competitiveness and reforming Europe, if you’re not willing to protect or fix overflights then quit and let somebody more effective do the job.”

The strike is estimated, by the Airlines for Europe lobby group to have led to at least 1,500 cancelled flights, leaving 300,000 travellers unable to make their journeys.

Ryanair chief executive Michael O'Leary speaks to journalists during a press conference at The Alex Hotel in Dublin. Picture date: Thursday October 3, 2024.
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Michael O’Leary believes the EU can take action on competition grounds. Pic: PA

Ryanair itself had axed more than 400 flights so far, Mr O’Leary said. Rival easyJet said on Thursday that it had cancelled 274 services over the two days.

The beginning of July marks the start of the European summer holiday season.

The French civil aviation agency DGAC had already told airlines to cancel 40% of flights covering the three main Paris airports on Friday ahead of the walkout – a dispute over staffing levels and equipment quality.

Mr O’Leary described those safety issues as “nonsense” and said twhile the controllers had a right to strike, they did not have the right to close the sky.

DGAC has warned of delays and further severe disruption heading into the weekend.

Many planes and crews will be out of position.

Mr O’Leary is not alone in expressing his frustration.

The French transport minister Philippe Tabarot has denounced the action and the reasons for it.

“The idea is to disturb as many people as possible,” he said in an interview with CNews.

Passengers are being advised that if your flight is cancelled, the airline must either give you a refund or book you on an alternative flight.

If you have booked a return flight and the outbound leg is cancelled, you can claim the full cost of the return ticket back from your airline.

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CBI kicks off search for successor to ‘saviour’ Soames

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CBI kicks off search for successor to 'saviour' Soames

The CBI has begun a search for a successor to Rupert Soames, its chairman, as it continues its recovery from the crisis which brought it to the brink of collapse in 2023.

Sky News has learnt that the business lobbying group’s nominations committee has engaged headhunters to assist with a hunt for its next corporate figurehead.

Mr Soames, the grandson of Sir Winston Churchill, was recruited by the CBI in late 2023 with the organisation lurching towards insolvency after an exodus of members.

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The group’s handling of a sexual misconduct scandal saw it forced to secure emergency funding from a group of banks, even as it was frozen out of meetings with government ministers.

One prominent CBI member described Mr Soames on Thursday as the group’s “saviour”.

“Without his ability to bring members back, the organisation wouldn’t exist today,” they claimed.

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Rupert Soames
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Rupert Soames. Pic: Reuters

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Mr Soames and Rain Newton-Smith, the CBI chief executive, have partly restored its influence in Whitehall, although many doubt that it will ever be able to credibly reclaim its former status as ‘the voice of British business’.

Its next chair, who is also likely to be drawn from a leading listed company boardroom, will take over from Mr Soames early next year.

Egon Zehnder International is handling the search for the CBI.

“The CBI chair’s term typically runs for two years and Rupert Soames will end his term in early 2026,” a CBI spokesperson said.

“In line with good governance, we have begun the search for a successor to ensure continuity and a smooth transition.”

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Ryanair and easyJet cancel hundreds of flights over air traffic control strike

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Ryanair and easyJet cancel hundreds of flights over air traffic control strike

Ryanair and easyJet have cancelled hundreds of flights as a French air traffic controllers strike looms.

Ryanair, Europe’s largest airline by passenger numbers, said it had axed 170 services amid a plea by French authorities for airlines to reduce flights at Paris airports by 40% on Friday.

EasyJet said it was cancelling 274 flights during the action, which is due to begin later as part of a row over staffing numbers and ageing equipment.

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The owner of British Airways, IAG, said it was planning to use larger aircraft to minimise disruption for its own passengers.

The industrial action is set to affect all flights using French airspace, leading to wider cancellations and delays across Europe and the wider world.

Ryanair said its cancellations, covering both days, would hit services to and from France, and also flights over the country to destinations such as the UK, Greece, Spain and Ireland.

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Group chief executive Michael O’Leary has campaigned for a European Union-led shake-up of air traffic control services in a bid to prevent such disruptive strikes, which have proved common in recent years.

He described the latest action as “recreational”.

Michael O'Leary. Pic: Reuters
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Michael O’Leary. Pic: Reuters

“Once again, European families are held to ransom by French air traffic controllers going on strike,” he said.

“It is not acceptable that overflights over French airspace en route to their destination are being cancelled/delayed as a result of yet another French ATC strike.

“It makes no sense and is abundantly unfair on EU passengers and families going on holidays.”

Ryanair is demanding the EU ensure that air traffic services are fully staffed for the first wave of daily departures, as well as to protect overflights during national strikes.

“These two splendid reforms would eliminate 90% of all ATC delays and cancellations, and protect EU passengers from these repeated and avoidable ATC disruptions due to yet another French ATC strike,” Mr O’Leary added.

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