British public borrowing has once again surpassed official forecasts for the first half of the tax year, highlighting the challenges facing Finance Minister Rachel Reeves ahead of her inaugural budget presentation next week.
Data released on Tuesday revealed that borrowing between April and September reached £79.6 billion ($103.5 billion), almost £7 billion more than the Office for Budget Responsibility (OBR) had anticipated. In September alone, borrowing stood at £16.6 billion—higher than the OBR’s projection of £15.1 billion but slightly below economists’ median forecast of £17.5 billion.
This marks the third-largest September borrowing figure since records began in 1993, driven largely by higher-than-expected public spending.
Economist Alex Kerr of Capital Economics noted that the figures illustrate the limited flexibility Reeves has for increasing day-to-day spending without raising taxes. However, he suggested that by adjusting fiscal rules, she could still create room for increased public investment.
Reeves has stated her intention to raise public spending to improve services and boost infrastructure, while Prime Minister Keir Starmer has emphasized that any tax increases should target the wealthiest. This likely points to hikes in taxes such as capital gains, dividends, inheritance taxes, and employer contributions to social security.
While some employer groups have expressed concern that higher taxes could undermine the government’s goal of accelerating economic growth, Reeves maintains that the previous Conservative government left her with a £22 billion fiscal shortfall. Conservatives dispute this claim, accusing Reeves of using it as a pretext for future tax hikes.
Deputy Finance Minister Darren Jones reiterated the criticism of the previous administration, stressing that “difficult decisions” would be necessary to address the public finance situation and lay the groundwork for economic recovery.
Reeves is expected to alter the government’s self-imposed fiscal rules to allow more borrowing for investment. However, investors predict that she will proceed cautiously to avoid triggering market instability, as seen during the 2022 bond market crisis caused by former Prime Minister Liz Truss’s tax cut proposals.
Public debt in September was reported at 98.5% of GDP, a slight revision from the previous estimate of 100% in August, which now stands at 98.8%.
