The UK government’s borrowing rose to its second highest level ever in the first eight months of the financial year, underlining the scale of the challenge facing Rachel Reeves despite higher tax revenues.
Figures from the Office for National Statistics (ONS) show the government borrowed £132.3 billion between April and November, £10 billion more than the same period last year. The only higher total for this period of the year was recorded in 2020, when emergency spending during the Covid-19 pandemic pushed borrowing to unprecedented levels.
In November alone, borrowing was £11.7 billion, £1.9 billion less than a year earlier and the lowest figure for that month since 2021. However, earlier months were revised upward by almost £4 billion, reinforcing the picture of continued pressure on public finances.
Tom Davies, senior statistician at the ONS, said that while November figures showed some improvement, the overall trend remained challenging. “Despite an increase in spending, borrowing this month was the lowest November in four years,” he said. “The main reason for the decline compared to the previous year was higher income from taxes and social security contributions. However, in the financial year to date overall, borrowing is higher than in the previous year.”
The markets reacted cautiously to the data: the yield on the ten-year government bond rose to 4.5 percent and the pound sterling fell slightly against the dollar.
Tax revenue rose sharply in the period, rising by £25 billion to £516 billion. This was due to a £21 billion increase in National Insurance contributions and a £14 billion increase in income tax revenue. However, spending rose even faster, by £55 billion to £736 billion, largely due to a £15 billion increase in benefit payments.
Reeves has already introduced a £25 billion increase in employers’ national insurance contributions, announced in her first budget last October and implemented in April, and extended a freeze on income tax thresholds in her second budget last month. The Office for Budget Responsibility (OBR) estimates that these measures have helped the Chancellor increase fiscal space back to around £22 billion following an additional £26 billion of tax rises, most of which will come into effect later in the forecast period.
Economists warned that the latest figures highlight the fragility of this situation. Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said the data showed “the shaky foundations” for relying on retrospective tax increases to restore credibility. “The overall picture is that public finances remain weak,” he said.
Sandra Horsfield, an economist at Investec, added that progress in reducing the deficit appeared “a little slower than hoped” despite higher revenues.
The ONS said the current budget deficit – which Reeves must convert to a surplus within five years to meet her fiscal rules – was £93bn in the eight-month period, £7bn more than a year earlier. The OBR forecasts total borrowing of £138 billion for the full financial year.
Public sector net debt rose to 85 percent of GDP in November, up 2.7 percentage points from a year earlier. Debt interest payments fell to £3.4bn in November, down from £9bn in October, but are still forecast to exceed £100bn a year over the next five years.
Treasury chief secretary James Murray said the figures underline the urgency of the government’s action. “1 in every £10 we spend goes towards interest on debt – money that could otherwise be invested in public services,” he said. “That’s why the Chancellor presented a budget last month that delivers on our promise to reduce debt and loans.”
