The beginning of the new financial year came with a problematic tone. Figures from the Office for National Statistics (ONS) revealed the government borrowed way more than predicted in the year to March.
To give context, experts from the Office for Budget Responsibility (OBR) predicted authorities would borrow – the difference between public sector spending and income taxes – £137.3bn but the figure actually came out at £151.9bn. This an increase of £20.7bn from the year before.
According to the findings, inflated costs were partly driven by £16.4bn of borrowing in March, which marks the third highest March borrowing since 1993. Two of the main forces behind such an increase were found to be the changes to the national minimum wage and the decision to increase benefits in line with the cost of living.
Commenting on the news, Grant Fitzner, chief economist at the ONS said: ‘Our initial estimates suggest public sector borrowing rose almost £21bn in the financial year just ended as, despite a substantial boost in income, expenditure rose by more, largely due to inflation-related costs, including higher pay and benefit increases.
‘At the end of the financial year, debt remained close to the annual value of the output of the economy, at levels last seen in the early 1960s.’
With the news in mind, some economists have warned that Reeves could be forced to raise taxes or cut public spending in the autumn budget if she wanted to maintain her self-imposed borrowing rules which were revealed in the latest spring statement.
Ruth Gregory, deputy chief UK economist at the consultancy Capital Economics said: ‘Public borrowing was overshooting the OBR’s forecast even before the influence from the tariff chaos is felt.
‘This raises the chances that if the chancellor wishes to stick her fiscal rules, more tax hikes in the autumn budget will be required.’
On the subject of tariffs, the news comes while the chancellor is trying to negotiate a US trade deal to ensure Britian isn’t taxed too highly on imported goods. The UK, alongside dozens of other countries, have been hit with tariffs on goods entering America, with Donald Trump looking to upend the order of global trade in a bid to boost US manufacturing and jobs.
The introduction of the tariffs have led to a downgrade in forecasts for the UK’s economic growth. They have dropped to 1.1% from 1.6% for 2025, which is worrying to say the least. Labour have made growing the economy its top priority in its efforts to improve living stands, but growth has remained sluggish with businesses being hit by higher taxes and households facing rising bills.
Against this backdrop, Darren Jones, chief secretary to the Treasury said the government is working harder than ever to find a solution and intends to analyse ‘every penny of taxpayer money spent, line by line, for the first time in 17 years to tear out waste.’
Photo by Josh Appel via UnSplash
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