Surprise good news as government borrowing less than forecast
The government borrowed the least amount of money in three years last month, official figures showed, in a surprise bout of good news for Chancellor Rachel Reeves.
Not since July 2021, in the midst of the COVID-19 pandemic, was state borrowing so low, according to data from the Office for National Statistics (ONS).
Increases in tax and national insurance receipts meant public sector net borrowing was £1.1bn in July, meaning there was a £1.1bn gap between government spending and income.
That borrowing is less than half the figure (£2.6bn) expected by economists polled by the Reuters news agency, as self-assessed income tax was £600m higher than expected.
But borrowing was still £6bn higher in the first four months of the financial year, which started in April, than the same period in 2024.
Despite a £2.3bn drop in monthly borrowing when July 2025 is compared with July 2024, the state still spent more on the cost of that lending.
The amount of interest paid on government debt was £7.1bn, £200m more than a year earlier.
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The cost of government borrowing has increased in recent months as the interest rate investors demand on loans issued to the UK (bonds) rose.
At the start of the week, the government’s long-term borrowing cost, as measured by the interest rate on 30-year bonds (known as the gilt yield), closed at the highest level since 1998.
What does it mean for the chancellor?
The monthly borrowing data is in line with the predictions made by independent forecasters, the Office for Budget Responsibility (OBR).
It may not be as rosy a picture, however, as research firm Capital Economics point out the cumulative budget deficit, rather than a monthly figure, is £5.7bn above the OBR’s forecast.
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Are taxes going to rise?
This matters for the chancellor’s self-imposed fiscal rules, to bring down government debt and balance the budget by 2030, the firm said.
“The chancellor will probably need to raise taxes by £17bn to £27bn at the budget later this year,” Capital Economics’ UK economist Alex Kerr said.
Elevated self-assessment income tax receipts “may just reflect the timing of tax returns being recorded, and receipts in August may be weaker than expected”, he added.
Responding to the figures, Ms Reeves’s deputy, chief secretary to the Treasury, Darren Jones, said: “Far too much taxpayer money is spent on interest payments for the longstanding national debt.
“That’s why we’re driving down government borrowing over the course of the parliament – so working people don’t have to foot the bill and we can invest in better schools, hospitals, and services for working families.”
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And they’re off! Bridget Phillipson was first away in her two-horse race with Lucy Powell in the Labour deputy leadership stakes.
Facing a rival who was sacked from the government nine days earlier, the education secretary said the deputy leader should be a cabinet minister, as Angela Rayner was.
Launching her campaign at The Fire Station, a trendy music and entertainment venue in Sunderland, she also vowed to turn up the heat on Nigel Farage and Reform UK.
She also repeatedly called for party unity, at a time when Labour MPs are growing increasingly mutinous over Sir Keir Starmer’s dealings with sacked Washington ambassador Lord Mandelson.
Despite Ms Phillipson winning 175 nominations from Labour MPs to Ms Powell’s 117, bookmakers StarSports this weekend made Ms Powell 4/6 favourite with Ms Phillipson at 5/4.
But though the new deputy leader will not be deputy prime minister, a title that’s gone to David Lammy, Ms Phillipson praised the way Ms Rayner combined the two roles and rejected suggestions that as a cabinet minister she would be a part-time deputy leader.
Phillipson’s deputy leadership rival Lucy Powell. Pic: Reuters
“What can be achieved under a deputy leader with a seat at cabinet, just look at Angela Rayner,” Ms Phillipson told her enthusiastic supporters.
“Angela knew the importance of the role she had. There was nothing part-time about her deputy leadership.
“Last year I campaigned up and down the country to get Labour candidates elected – I’ve not stopped as education secretary – and I won’t stop as deputy leader.
“Because with local elections, and with elections in Wales and Scotland right around the corner, that role is going to be more important than ever.
“So that’s why, today, I pledge to continue Angela Rayner’s campaigning role as deputy leader.
“Continuing her mission to give members a strong voice at the cabinet table.
“Her ruthless focus on getting our candidates elected and re-elected, alongside her total determination to drive change from government. Because what mattered was not just what she believed, but that she could act on it.”
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Ms Phillipson pledged to run a campaign of “hope, not grievance” and claimed the party descending into division would put the chances of children and families benefiting from Labour policies at risk.
But admitting Sir Keir Starmer’s government had made mistakes, she appealed to party members: “You can use this contest to look backward, to pass judgement on what has happened in the last year, or you can use it to shape positively what happens in the run-up to the next election.
“Back me so I can unite our party, deliver the change we want to see and beat Reform. Back me so together, we can deliver that second term of Labour government.”
Phillipson with Labour supporters at her campaign launch on Sunday. Pic: PA
Starmer’s candidate vs Manchester mayor’s
As she did in a speech at the TUC conference last week, Ms Phillipson spoke about her upbringing “from a tough street of council houses in the North East all the way to the cabinet”.
At the TUC, she said she grew up – “just me and my mam” – and told how when she was nine, a man who’d burgled the house turned up at the front door with a baseball bat and threatened her mother.
Ms Powell, who enjoys the powerful backing of Labour’s ‘King of the North’ Andy Burnham, called this weekend for a change in culture in 10 Downing Street, with better decisions and fewer unforced errors.
His backing has led to the deputy contest being seen as a battle between Sir Keir’s candidate, Ms Phillipson, and that of the Greater Manchester mayor, seen increasingly as a leadership rival to the prime minister.
And like all the best horse races, with the betting currently so tight, when the result is declared on 25 October the result could be a photo-finish.
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