Taxes rises expected as government borrowing the highest in 5 years latest ONS figures

Government borrowing last month was the highest in five years, official figures show, exacerbating the challenge facing Chancellor Rachel Reeves

Not since 2020, in the early days of the COVID-19 pandemic with the furlough scheme ongoing, was the August borrowing figure so high, according to data from the Office for National Statistics (ONS).

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Tax and national insurance receipts were “noticeably” higher than last year, but those rises were offset by higher spending on public services, benefits and interest payments on debt, the ONS said.

It meant there was an £18bn gap between government spending and income, a figure £5.25bn higher than expected by economists polled by Reuters.

A political headache

Also released on Friday were revisions to previous months’ data.

Borrowing in July was more than first thought and revised up to £2.8bn from £1.1 bn previously.

For the financial year as a whole, borrowing to June was revised to £65.8bn from £59.9bn.

State borrowing costs have also risen because borrowing has simply become more expensive for the government. Interest payments rose to £8.4bn in August.

It compounds the problem for Ms Reeves as she approaches the November budget, and means tax rises could be likely.

Her self-imposed fiscal rules, which she repeatedly said she will stick to, mean she must bring down government debt and balance the budget by 2030.

Tax rises?

Ms Reeves will need to find money from somewhere, leading to speculation taxes will increase and spending will be cut.

“Today’s figures suggest the chancellor will need to raise taxes by more than the £20bn we had previously estimated,” said Elliott Jordan-Doak, the senior UK economist at economic research firm Pantheon Macroeconomics.

“We still expect the chancellor to fill the fiscal hole with a smorgasbord of stealth and sin tax increases, along with some smaller spending cuts.”

Sin taxes are typically applied to tobacco and alcohol. Stealth taxes are ones typically not noticed by taxpayers, such as freezing the tax bands, so wage rises mean people fall into higher brackets.

Increased employers’ national insurance costs and rising wages have meant the tax take was already up.

Responding to the figures, Ms Reeves’s deputy, chief secretary to the Treasury, James Murray, said: “This government has a plan to bring down borrowing because taxpayer money should be spent on the country’s priorities, not on debt interest.

“Our focus is on economic stability, fiscal responsibility, ripping up needless red tape, tearing out waste from our public services, driving forward reforms, and putting more money in working people’s pockets.”