UK borrowing rises to second highest level as spending outstrips tax receipts
UK government borrowing rose to its second highest level on record in the first eight months of the financial year, underscoring the scale of the challenge facing Rachel Reeves despite strong tax receipts.
Figures from the Office for National Statistics (ONS) show that the government borrowed £132.3 billion between April and November, £10 billion more than the same period last year. The only higher total for that period of the year was recorded in 2020, when emergency spending during the Covid-19 crisis pushed borrowing to unprecedented levels.
Borrowing in November alone came to £11.7 billion, £1.9 billion lower than last year and the lowest figure for that month since 2021. However, the previous months were revised upwards by almost £4 billion, reinforcing the picture of continued pressure on public finances.
Tom Davies, chief statistician at the ONS, said that while the November figure showed some improvement, the wider trend remained challenging. “Although spending has increased, this month’s borrowing was the lowest November in four years,” he said. “The main reason for last year’s decline is the increase in tax receipts and National Insurance contributions. However, for the whole financial year to date overall, borrowing is higher than last year.”
Markets reacted cautiously to the data, with yields on the 10-year benchmark reaching 4.5 percent and sterling easing slightly against the dollar.
Tax revenue increased significantly during this period, rising by £25 billion to £516 billion. This was driven by a £21 billion increase in National Insurance contributions and a £14 billion increase in income tax receipts. However, spending grew more rapidly, rising from £55 billion to £736 billion, mainly due to a £15 billion increase in interest payments.
Reeves has already introduced a £25 billion increase in employer National Insurance contributions, announced in his first budget last October and rolled out in April, and added a cap on income tax in his second budget last month. The Office for Budget Responsibility (OBR) estimates that those measures have helped the chancellor rebuild the finance office to around £22 billion, after tax increases of £26 billion – most of which take effect later in the forecast period.
Economists have warned that the latest figures highlight the fragility of that position. Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said the data showed “shaky foundations” for relying on back-loaded tax rises to restore credibility. “The big picture is that public finances remain fragile,” he said.
Sandra Horsfield, economist at Investec, added that progress on reducing the deficit appeared to be “slower than expected”, despite strong incomes.
The ONS said the current budget deficit – which Reeves must turn into a surplus within five years to meet his budget rules – stood at £93 billion in the eight-month period, £7 billion more than last year. The OBR is forecasting total borrowing of £138 billion for the full financial year.
Total public sector debt rose to 85 percent of GDP in November, up 2.7 percent year-on-year. Debt interest payments fell to £3.4 billion in November, down from £9 billion in October, but are still forecast to exceed £100 billion a year over the next five years.
James Murray, chief secretary to the Treasury, said the figures underscored the urgency of the government’s approach. “£1 in every £10 we spend goes towards debt interest – money that could be invested in public services,” he said. “That’s why last month the chancellor put forward a budget that fulfills our promise to reduce debt and borrowing.”
