Credit: Alamy

Government borrowing unexpectedly jumped to £1.8bn last month, raising fears of tax hikes at the upcoming autumn Budget.

New data from the Office for National Statistics (ONS) shows government borrowing was up £700m in July compared to the same time last year, a rise of 68.7%.

The jump came as a shock after most economists had previously forecast zero borrowing last month, while the ONS had predicted a £500m surplus.

The hike in borrowing also came despite the government raking in record amounts of income tax in July.

Sign up for the Money newsletter

Thank you!

The latest figures take total public sector net borrowing nearing £3trn. That makes it 645 higher than March 2020, at the start of the pandemic.

New chancellor John Healey will have to make decisions about spending and tax at the Budget in October, and rises in government debt will increase fears tax rises could be on the cards to repair the public finances.

Mr Healey said: “Fiscal discipline is the bedrock of our UK economic stability and national security, which is why we are committed to meeting our fiscal rules, with a buffer against global uncertainties.”

“We are cutting the deficit faster than any other G7 economy, while giving people a bit of breathing space with cost of living pressures and focusing support to get young people into work.”

Income tax and National Insurance paid by employees came in at £173.2bn in the three months from April to July , which is £12.5bn more than the same period last year.

Experts say this is because of the government’s previous decision to extend the freeze on income tax thresholds, which is dragging more people into paying tax, or paying it at a higher rate.

Shaun Moore, tax and financial planning expert at Quilter, said: “As wages rise, more people are being pulled into paying income tax for the first time, while millions more are finding themselves nudged into higher tax bands.

“For the Treasury, it is an effective way of boosting revenues without announcing headline tax rises, but for taxpayers it often means paying more tax without feeling any better off.”

Capital Gains Tax – tax paid when you sell assets like second homes or investments – also raked in a huge amount for the government, with £194m paid over the three month period.

That’s £29m more than was paid over the same three months last year.