According to official figures, rising costs for public services and social benefits pushed public debt higher than expected in July.

Borrowing, the difference between spending and tax revenue, reached £3.1 billion last month, the highest level for a July since 2021.

The increase was £1.1 billion above most economists’ forecasts and led to speculation about what tax and spending decisions the Chancellor of the Exchequer will announce in the autumn budget.

The Office for National Statistics (ONS) also announced that Britain’s national debt remains at its highest level since the early 1960s.

Jessica Barnaby, deputy director of public finance at the ONS, said income tax receipts had risen “sharply” and interest payments on debt had fallen last month.

However, she added that this effect would be more than offset as “the costs of public services and social benefits continued to rise”, leading to higher borrowing.

The figures showed that spending on social benefits jumped due to recent inflation-related increases.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said the latest borrowing figures showed that public spending was “already exceeding budget forecasts”.

“Further corrections could change the picture slightly, but Finance Minister Rachel Reeves will probably have to raise taxes and borrow more in the medium term to cover higher spending on public services,” he added.

Isabel Stockton, senior economist at the Institute for Fiscal Studies, said Finance Minister Rachel Reeves faces “difficult decisions” when she presents her first budget on October 30.

Darren Jones, chief secretary to the Treasury, said the loan figures were “further evidence of the grim legacy left to us by the previous government”.

He said taxpayers’ money was being “wasted on paying debt interest rather than on our public services”.

There is a heated dispute between Labour and the Conservatives over the current state of public finances.

Chancellor Rachel Reeves has previously stated that the government must increase some taxes in the October budget, claims that the previous government had a £22 billion “hole” in public finances.

However, the Conservatives deny this and instead accuse Labour of misleading the public about tax increases.

Borrowing is generally lower in July than in other months because the government has already collected a large amount of self-paid income taxes by this time of the year.

However, the higher government spending this year means it is the fourth highest annual borrowing since monthly records began in January 1993. The government spent a total of £107.4 billion this July, £3.5 billion more than in July last year.

Interest paid on government bonds in July totalled £7 billion, the second highest interest payments for that month since the department began collecting data in 1997, according to the ONS.