The UK government borrowed £16bn in June 2025, according to the Office for National Statistics (ONS), a figure £7.9bn lower than the same month last year and below City economists' expectations. The borrowing was also £300m less than the Office for Budget Responsibility (OBR) forecast, driven largely by lower inflation-linked debt interest costs.
Burnham announces VAT cut on electricity bills
Prime Minister Andy Burnham used the positive fiscal news to unveil a plan to cut VAT on domestic electricity bills from 1 October, aiming to ease the cost of living. The cut will be funded by cancelling the digital ID programme, according to Chancellor John Healey.
Healey stated: “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 added that he and Burnham would “work in lockstep to meet the fiscal rules with a buffer against uncertainty.”
Bond market jitters and fiscal constraints
Despite the lower borrowing figure, Britain’s economy faces headwinds from higher energy prices linked to the Iran war and rising global bond yields. Investors remain cautious about Burnham’s tax and spending plans, with bond markets finely poised amid expectations of a looser fiscal approach than under Keir Starmer and Rachel Reeves.
Burnham told reporters on Monday that he could consider using “flexibility” in the fiscal rules to boost public investment, a comment interpreted by some as a signal for higher borrowing.
Debt interest payments and fiscal year borrowing
ONS data showed debt interest payments reached £11.8bn in June, £5.3bn lower than a year earlier but still the fourth highest June on record. Borrowing for the financial year to date stood at £57.6bn, £3.7bn less than the same period last year but £2.7bn above the OBR forecast.
Nabil Taleb, an economist at PwC UK, warned: “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.”
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “June’s public finances were a rare piece of good news for the new PM Burnham and chancellor Healey, but with the UK’s debt burden still rising, there is limited scope for extra public borrowing.”
