Labour has said it has received the worst economic inheritance since the second world war after official figures showed the government borrowed more than expected in June.
Underscoring the challenges facing the chancellor, Rachel Reeves, the Office for National Statistics reported that UK borrowing – the difference between public sector spending and income – was £14.5bn last month.
Although borrowing in the first three months of 2024-25 was £1.1bn lower than the same period a year earlier, at £49.8bn, the Office for Budget Responsibility said it was £3.2bn above its last forecast, published at the March budget.
Labour has warned in the first weeks since its election landslide that, after 14 years of Conservative rule, it has inherited a dire financial position, with the national debt at its highest levels since the 1960s.
Darren Jones, the chief secretary to the Treasury, said on Friday: “Today’s figures are a clear reminder that this government has inherited the worst economic circumstances since the second world war, but we’re wasting no time to fix it.
“Fixing the economy’s foundations and restoring stability is the only way we can create growth and put more money back into people’s pockets across the country. That’s why we’ve introduced our budget responsibility bill, which will ensure that no future government can play fast and loose with the public finances.”
Reeves is expected to lay bare the state of public spending in an update to the Commons before the end of the month, in a step insiders say is likely to be used to demonstrate the challenge facing the new government to repair public services and grow the economy.
It is believed that the chancellor may not provide the update until the final days before parliament rises for the summer recess on 30 July, as she is expected to travel to Brazil to attend G20 meetings taking place on Thursday and Friday next week.
She has yet to announce the date of a first budget, expected this autumn. Reeves has said the OBR requires 10 weeks’ notice to provide independent forecasts. That timeframe would mean no budget until after Labour’s annual party conference in Liverpool in the final week of September.
The government is, however, under mounting pressure to find room in the public finances to abolish the two-child limit on benefits, a Tory policy introduced in 2017, which campaigners have labelled as the UK’s single biggest driver of child poverty.
Analysis by the Resolution Foundation shows that abolishing the two-child limit would cost about £2.5bn today, rising to £3bn if combined with the abolition of the benefit cap, a separate restriction on benefits limiting the total amount of support a household can receive.
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Labour refused to commit to abolishing the two-child limit during the general election campaign, saying there were tight constraints on the government finances, and insisting that economic growth was its priority.
Cara Pacitti, a senior economist at the Resolution Foundation, said: “Weaker-than-expected borrowing so far this year will serve as a reminder to the new chancellor of the huge fiscal challenge she faces ahead of her first budget this autumn.
“The fiscal inheritance facing Rachel Reeves is one of rising taxes, falling spending for many public services, and very little wriggle if bad economic news materialises. And data this week on inflation, jobs and government borrowing have not been encouraging.”