The UK government's finances have taken centre stage in recent weeks, and June's borrowing figures offer some respite from concerns over PM Andy Burnham's tax cut plans. Public sector net borrowing – the difference between government spending and income – fell to £16 billion last month, a drop of £7.9 billion on June 2025, and below forecasts from City economists and the Office for Budget Responsibility.
This improvement is largely attributed to reduced inflation-linked debt interest costs. The news comes as welcome relief for Mr Burnham, who has pledged to support households by removing Value Added Tax (VAT) from domestic electricity bills from 1 October. Chancellor John Healey confirmed this tax cut will be financed this year through cancelling the digital ID programme, highlighting the government's commitment to fiscal control.
Despite the positive June figures, the economic outlook remains challenging. While the UK economy has shown some resilience, global bond markets are experiencing jitters, and investors are scrutinising the new Prime Minister's tax and spending proposals closely. Mr Burnham aims to adhere to Labour's established fiscal rules and manifesto tax commitments to maintain market confidence. However, with looming spending pressures, Chancellor Healey may face difficult decisions regarding potential tax increases or other measures to fund the government's economic agenda.
The ONS data also reveals that debt interest payments totalled £11.8 billion in June – a decrease of £5.3 billion from the same month last year but still the fourth-highest June on record for such payments. For the financial year to date, borrowing stands at £57.6 billion – £3.7 billion less than the corresponding period last year, yet £2.7 billion above the Office for Budget Responsibility's forecast, highlighting ongoing pressures on public finances.
Economists caution that these pressures could lead to difficult trade-offs for the new leadership. Nabil Taleb, an economist at PwC UK, notes that even modest commitments can have significant consequences given sensitive borrowing costs and limited fiscal headroom. Ruth Gregory, Deputy Chief UK Economist at Capital Economics, describes June's public finances as a "rare piece of good news", but stresses that the UK's rising debt burden limits the scope for additional public borrowing.