Danni Hewson, AJ Bell financial analyst, comments on today’s public spending figures:
“Government borrowing is going down and tax receipts are going up; that equation is proof if it were needed that the lifting of restrictions is powering the economy forward. But it’s not all good news, not by a long shot. Government spending actually increased by £2.5bn in June compared to the June 2020 with falling furlough costs offset by spending on vaccines and the test and trace programme as well as interest payments on the debt pile. That figure of £8.7bn, up by a whopping £6bn from the same month last year, is the highest since records began in April 1997. It’s a timely reminder of the impact inflation can have with the hikes in interest down to gilts pegged to RPI increases.
“It’s something that will certainly have the Chancellor taking a long look at his ledger as will the simple fact that though tax take has gone up, the country is still living considerably beyond its means. Going forward he’ll be under pressure to shake that magic money tree to find extra cash to help fuel the recovery particularly in areas like health and education. And if inflation runs hotter for longer than economists are predicting the money tree’s magic potion may have an unpalatable aftertaste.
“But magic is already being spun by the act of reopening. Though the tax take is still falling short of what’s needed for day to day spend it is increasing month by reopened month. More journeys, more consumer spend, and a frankly sizzling housing market are adding to the pot. With schemes like furlough and the stamp duty holiday winding down, the Treasury’s calculators will be out and waiting to assess whether changes will bring a boost to fortunes or dampen the mood entirely.”
