UK Government Borrowing Falls Below Forecasts Amid New Economic Plans

The UK government borrowed less than expected in June, in a boost for Andy Burnham as he set out plans to cut VAT on household electricity bills and promised a new direction for the British economy.

The Office for National Statistics (ONS) said public sector net borrowing – the difference between government spending and income – was £16bn last month, £7.9bn less than in June 2025.

The figure came in below the predictions of City economists and was £300m less than the forecast from the Office for Budget Responsibility, largely because of lower inflation-linked debt interest costs.

Britain’s economy has shown signs of resilience in recent months despite concerns over the impact of higher energy prices linked to the Iran war. The UK government’s borrowing costs have risen amid jitters in global bond markets, and as investors fret over the new prime minister’s tax and spending plans.

The latest snapshot comes as Burnham announced a fresh tax cut to support households with the cost of living by removing VAT from domestic electricity bills from 1 October.

The newly appointed chancellor, John Healey, said the cut would be funded this year from cancelling the digital ID programme.

Healey said he and Burnham had agreed to “work in lockstep to meet the fiscal rules with a buffer against uncertainty” alongside making plans to help cut the cost of living.

“Fiscal control is the first duty of any chancellor. It is mine. And fiscal credibility is the bedrock for economic stability and for national security,” he said.

The prime minister has said he will stick to Labour’s fiscal rules and the party’s manifesto tax promises, making it tougher for him to pursue a radically different path to Keir Starmer.

Retaining the self-imposed borrowing and debt constraints drawn up by Rachel Reeves has been seen as vital to avoiding a backlash in the markets. However, with spending pressures looming, Healey could be forced to consider tax increases or other measures to help finance the new prime minister’s agenda for the economy.

It comes with bond markets finely poised amid expectations Burnham could run a looser approach to public finances than Starmer and Reeves. The new prime minister told reporters in the Downing Street garden on Monday that he could consider utilising “flexibility” in the fiscal rules to bolster public investment, in comments read by some investors as a signal for higher borrowing.

The latest figures from the ONS showed debt interest payments reached £11.8bn in June, a figure £5.3bn lower than the same month a year earlier, but still the fourth highest June on record.

Borrowing was £57.6bn in the financial year to date. While this was £3.7bn less than in the same period last year, it is £2.7bn above the OBR forecast.

Nabil Taleb, an economist at PwC UK, said the strain on public finances could leave Burnham and Healey facing difficult trade-offs.

“With borrowing costs still sensitive and fiscal headroom limited, even modest commitments can carry significant consequences. What matters is whether ambition is matched by credible funding and a convincing grip on borrowing,” he said.