Tight labour market boosts Treasury coffers but no tax cuts forecast in near future

Government borrowing was less than predicted but was still the fifth highest July figure on record

Public sector net borrowing stood at £4.3 billion in July, £3.4 billion more than a year ago. PA
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The British government borrowed less than expected last month, but the figure remained the fifth highest July number since records began in 1993, according to the Office for National Statistics.

The ONS said public sector net borrowing stood at £4.3 billion in July, £3.4 billion more than a year ago.

Economists had predicted borrowing of £4.9 billion.

Also, the ONS said the budget deficit between April and July was £56.6 billion ($72.3 billion), £11.3 billion less than the Office for Budget Responsibility forecast in March.

The UK's net debt was £2.58 trillion at the end of July, which equates to 98.5 per cent of the country's gross domestic product. It was also 1.9 per cent higher than at the end of July last year, the ONS said.

Upward revisions to gross domestic product figures in the last few months meant that the government's debt did not exceed 100 per cent of GDP in July.

Higher tax receipts

The government brought in more money than expected in July – at £85.2 billion, it was £3.4 billion more than in July 2022 and £2.3 billion more than the £82.9 billion forecast by the Office for Budget Responsibility.

The £85.2 billion figure consisted of £65.6 billion worth of tax receipts, which was £3.9 billion more than in July 2022.

The ONS said that income taxes receipts rose £3.5 billion, the corporation tax take was up £0.7 billion, and £0.6 billion more VAT was gathered in July.

The government's coffers are benefiting from the UK's tight labour market, which is boosting taxes from rising wages, and the end of subsidies for household energy bills. Even though the tax receipts beat the OBR forecasts, experts said that shouldn't be read as a prelude to tax cuts.

“The tight labour market and strong wages growth it is fuelling is one of the main driving forces behind the better tax receipts, helping to offset the higher debt costs attributable to rising interest rates and high inflation,” said Stuart Cole, chief macro economist at Equiti Capital.

“However, how much room the government will ultimately have to cut taxes next year remains uncertain and is likely to be very limited.”

Updated: August 22, 2023, 8:20 AM