According to official figures, rising costs for public services and social benefits pushed public debt to higher than expected levels 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 Office for National Statistics (ONS) said.

The unexpected increase has led analysts to speculate about what tax and spending decisions the finance minister will announce in the autumn budget.

One economist said Rachel Reeves faced “difficult decisions”, while another added that the government was likely to raise taxes.

The Finance Minister had previously announced that some taxes would be increased, but reiterated that she would not increase VAT, social security contributions or income tax.

Jessica Barnaby, deputy director of public finance at the ONS, said the latest public finance figures showed that income tax receipts rose “sharply” last month and interest payments on debt fell.

However, she added that this effect would be more than offset by increases in public service costs and inflation-linked benefit increases, leading to higher borrowing.

The increase in national debt was £1.1 billion higher than most economists expected.

July typically sees lower borrowings compared to other months because the government has collected a higher number of self-assessed income taxes at this time of year. This year’s July amount was £1.8 billion higher than in 2023.

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, added that Ms Reeves faced “difficult choices” in her first budget on October 30, in which the government will set out its tax and spending plans.

The Chancellor’s decisions will have an impact on which public funds are used to finance hospitals, schools and the police, for example.

Ms Reeves will also make her decisions based on compliance with the government’s self-imposed fiscal rules, which are designed to preserve the government’s credibility in financial markets. Most governments in rich countries have such rules.

Darren Jones, chief secretary to the Treasury, said Wednesday’s lending 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 dispute between Labour and the Conservatives over the current state of public finances.

Ms Reeves had previously said the Government would have to raise some taxes because of a £22 billion “hole” in public finances left by the previous Conservative government.

However, the Conservatives denied this and instead accused Labour of misleading the public about tax increases.

In addition to the credit figures, the ONS announced last month that Britain’s national debt remains at its highest level since the early 1960s.

It said the government spent a total of £107.4 billion in July this year, £3.5 billion more than in July last year.

Interest paid on government bonds in July amounted to £7 billion, the second highest for that month since data first began collecting in 1997.

However, the amount was still below the estimate of the Office for Budget Responsibility, the government’s official forecaster.

The ONS’s latest spending figures are provisional and may therefore change before the budget is drafted, leading to different policy decisions.