UK government borrowing blows past estimates on Labour’s spending plans
Government borrowing spiked in April, official data has shown, reflecting Rachel Reeves’s difficulties in controlling public finances.
The rise to £20.2bn in monthly borrowing was more than economists’ prediction of £18bn.
Capital Economics suggested that the rise in borrowing costs since March via debt interest payments has slashed Reeves’ headroom down to £5.7bn.
Tax receipts came in at £62.1bn, according to the Office for National Statistics (ONS), while government expenditure was provisionally set at £93.9bn.
The rise in expenditure of £4.2bn compared to a year before was due to pay rises in the public sector, the ONS said.
The ONS also revised March figures showing that borrowing in the financial year of 2024/25 was £148.7bn, but this figure was still £11bn above the OBR’s forecast.
Dennis Tatarkov, senior economist at KPMG UK, said trade deals struck with the EU and US could make the borrowing outlook “more favourable”.
Darren Jones, chief secretary to the Treasury, blamed economic management under the previous government for “crippling the public purse” and said Labour policies have helped to cut borrowing for businesses.
“We’re fixing the NHS, with three million more appointments to bring waiting lists down, rebuilding Britain with our landmark planning reforms and strengthening our borders, delivering on the priorities of the country through our plan for change,” he added.
Capital Economics’ Ruth Gregory said data for April showed that the fiscal year had “got off to a poor start”.
“[It] raises the chances that if the Chancellor wishes to stick to her fiscal rules, more tax hikes in the Autumn Budget will be required,” Gregory added.
Shadow Chancellor Mel Stride said the figures showed Labour were “reckless”.
“Instead of reining in spending, the Labour Chancellor has piled billions onto the national debt by fiddling the fiscal rules and maxing out the national credit card,” he said.
Reeves is in a difficult position given pressures in the Labour Party over the extent of welfare cuts being made.
A £2bn cut to winter fuel payments will now be partly reversed, prompting fears that a package of welfare reforms may be softened.
Costs are already piling up for the government given pledges to spend more on defence and increase public sector pay.
Reeves faces political pressure
Political tensions over expenditure plans are spilling over ahead of a crucial spending review in mid-June that could signal the government’s seriousness about eliminating quangos and making substantial cuts.
Some investors are growing frustrated with the government over the lack of clarity on tax rises given leading economists have suggested Reeves may have to U-turn on manifesto pledges in order to keep her £9.9bn headroom.
Lenders are also on edge following recent spikes in gilt yields triggered by cooler interest rate cut joes and jitters over President Trump’s hardcore economic policies in the US.
Reeves still has five months to go before the next Budget and she has made growth a central focus, claiming reforms on pensions and planning can help to boost GDP and increase tax receipts.
While economists agree that a lot can happen before October, OBR and Bank of England growth forecasts of around one per cent, along with fears productivity levels do not improve, are raising fears that Reeves tax Brits.
Deputy prime minister Angela Rayner has reportedly called for the Chancellor to target investors and pension savers, suggesting splits in the Cabinet are beginning to emerge over fiscal policy.
The government is separately pushing to clamp down on tax avoiders by enforcing compliance measures.
The National Audit Office said government efforts to curb tax avoidance brought it an extra £5bn in income.