The UK government borrowed less than expected in June, providing an early boost to Prime Minister Andy Burnham and Chancellor John Healey as they outline plans to support households amid rising living costs. Data from the Office for National Statistics (ONS) showed public sector net borrowing stood at £16 billion last month, a significant decrease from £23.3 billion in May and £20.7 billion in June 2025. This figure was £300 million below the Office for Budget Responsibility’s (OBR) forecast of £16.3 billion and notably lower than City economists' expectations of around £18 billion.

The reduced borrowing was driven by a combination of stronger tax receipts and lower spending on inflation-linked debt interest. Total tax revenues for June rose to £91.6 billion, up from £85.4 billion a year earlier, supported by increased income tax, VAT, national insurance, and corporation tax collections. Meanwhile, debt interest payments fell to £11.3 billion in June from £16.6 billion in the same month last year, a decrease largely attributed to lower inflation-linked debt servicing costs.

Despite the positive monthly figures, borrowing for the first three months of the financial year remains elevated at £57.6 billion, exceeding the OBR’s forecast by £2.7 billion. Analysts have cautioned that the June data should not be interpreted as a definitive turning point for the public finances. Martin Beck, chief economist at WPI, noted the volatility typically seen in monthly borrowing figures and emphasized the government would require several more months of favorable data to confirm a sustained improvement.

The government’s borrowing costs have been influenced by increased market rates following geopolitical tensions, such as the recent US-Iran conflict, which have raised the cost of market borrowing. Although total government spending decreased slightly to £108 billion in June from £108.6 billion in May, spending on social benefits and goods and services rose marginally.

In response to the cost-of-living challenges, Burnham announced a measure to remove the 5 percent VAT on domestic electricity bills starting from October. The policy aims to reduce the average household energy bill by approximately £45 annually and is expected to lower headline consumer price inflation by 0.1 percent. The cost of this VAT cut, estimated at £850 million, will be offset by canceling the planned digital ID programme, which was due to cost £1.8 billion over three years.

Chancellor John Healey highlighted the importance of fiscal discipline, affirming a commitment to maintaining the fiscal rules inherited from the previous government, which include balancing current spending with tax revenues and reducing the debt burden by the end of the parliamentary term. Healey emphasized that fiscal credibility is vital for economic stability and national security, adding that his team would work closely with the prime minister to maintain a buffer against uncertainty while advancing policies to ease financial pressures on working people.

Economists recognize the fragility of the public finances and the limited room for increased borrowing amid ongoing economic and geopolitical challenges, underscoring the balancing act facing the new government as it seeks to navigate fiscal responsibility alongside support for households.