Government borrowing hits second-highest August on record in setback for Healey

UK Government borrowing saw its second-highest August, with public sector net borrowing at £18.3 billion. This was £3.5 billion more than what official Government forecasters had been expecting, the Office for National Statistics (ONS) said. Russ Mould, investment director at AJ Bell, believes it may mean consumers could expect changes on taxation.

He said: “Higher than expected government borrowing in August alongside rising gilt yields and higher inflation have caught Prime Minister Andy Burnham and Chancellor John Healey in a spider’s web.

“They might find the only way to break free and achieve their goals is to push up taxes, or lower their ambitions. Otherwise, they could be in a sticky mess and not make any progress.

“Government debt has become more expensive to service, and it seems inevitable that the government’s fiscal headroom is shrinking, leaving it with little wiggle room.

“All signs point towards a potentially difficult Budget with businesses and consumers braced for major changes on taxation.

“Burnham is still fresh in the job and won’t want to kick off his tenure with a barrage of bad news. He needs to show there is a plan to drive the economy and make people feel better off.

“The government is unlikely to want to cut public spending, which means higher taxes are unavoidable if Burnham and Healey don’t want to add to already substantial borrowing levels.”