Government borrowing increase adds to pressure on Reeves

UK authorities borrowing rose by greater than anticipated final month, including to the stress on the Chancellor, Rachel Reeves.Borrowing – the distinction between public spending and tax earnings – was £20.7bn in June, up £6.6bn from the identical month final 12 months, the Workplace for Nationwide Statistics (ONS) mentioned.Increased spending on public providers and debt curiosity funds outstripped income from different taxes, together with employers’ Nationwide Insurance coverage contributions which was lifted in April, the ONS mentioned.Analysts say it’s more and more doubtless that the chancellor must increase taxes on the Price range within the autumn, after the federal government reversed cuts to advantages that had been aimed toward saving billions of kilos.The most recent borrowing determine was the second-highest June determine since month-to-month information started in 1993, the ONS added, behind solely June 2020, which was closely affected by the pandemic.Dennis Tatarkov, senior economist at KPMG UK, mentioned the info “piles extra stress on public funds”.”Moreover, the longer-term outlook for public funds stays troublesome. Latest U-turns on welfare and protracted progress headwinds might open a spot in opposition to fiscal targets, which might require additional tax rises or spending cuts within the Autumn Price range.”The ONS mentioned curiosity funds on authorities debt rose to £16.4bn in June 2025, which was practically double the quantity paid on the similar level final 12 months.The rise is because of a pick-up within the charge of inflation, with curiosity funds on some authorities debt linked to the Retail Costs Index measure of inflation.Borrowing within the first three months of the present monetary 12 months has now reached £57.8bn. Whereas this is a rise of £7.5bn from the identical interval in 2024, it’s according to what the Workplace for Price range Duty, the official unbiased forecaster, had predicted.Regardless of this, Alex Kerr, UK economist at Capital Economics, warned that “issues will in all probability worsen for the chancellor”.”We expect that she might want to increase £15-25bn on the Price range later this 12 months, with greater taxes doing many of the heavy lifting.”Expectations are growing that Reeves must increase taxes within the autumn to ensure that the federal government to fund its spending commitments, and final month she refused to rule out tax will increase.The chancellor is following two major guidelines, which she has argued will convey stability to the UK financial system:day-to-day authorities prices will probably be paid for by tax earnings, reasonably than borrowingto get debt falling as a share of nationwide earnings by the top of this parliament in 2029-30Mr Kerr mentioned the most recent borrowing figures confirmed earnings tax income had been decrease than anticipated “which means that the latest weak point within the labour market is weighing on receipts”, and this might proceed “with underlying financial progress nonetheless weak”.The latest progress figures have proven that the UK’s financial system contracted in each April and Could. Reacting to the most recent borrowing figures, Darren Jones, Chief Secretary to the Treasury, mentioned: “We’re dedicated to robust fiscal guidelines, so we don’t borrow for day-to-day spending and get debt down as a share of our financial system.”Shadow chancellor Mel Stride mentioned: “Rachel Reeves is spending cash she does not have. Debt curiosity already prices taxpayers £100bn a 12 months – nearly double the defence funds.”