The government’s borrowing bill came in lower than expected in May, as higher business tax revenues and falling debt interest payments helped to improve the UK’s public finances.
According to figures released by the Office for National Statistics (ONS), public sector net borrowing fell to £17.7 billion last month — below economists’ forecasts of around £18 billion, and down from £20.2 billion recorded in April, the first month of the new fiscal year.
The fall was largely driven by a £1.8 billion rise in national insurance contributions from employers, following an increase to the rate that came into effect on April 1. The Treasury also benefited from a £700 million reduction in debt interest payments, which dropped to £7.6 billion, thanks to lower retail price inflation (RPI) — a key benchmark for index-linked gilts.
Despite the improvement, May’s borrowing figure was £700 million higher than the same month last year, as the cost of government services and inflation-linked benefit payments continued to climb. The UK’s debt-to-GDP ratio stood at 96.4 per cent in May, reflecting the lingering effects of pandemic-era spending, inflation, and subdued growth.
The modest undershoot in borrowing will be welcomed by Chancellor Rachel Reeves, who has pledged to meet her key fiscal rule of borrowing only for investment by the end of the current parliamentary term. Speaking at The Times CEO Summit this week, Reeves said the fiscal rules were vital to placing the public finances on a “firm footing.”
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