What's happened
In May 2025, UK public sector borrowing surged to £17.7 billion, the second highest for the month on record. This increase comes despite a rise in tax receipts, particularly from national insurance contributions, following recent tax hikes. Economists warn that further tax increases may be necessary to address the growing deficit.
What's behind the headline?
Economic Implications
- The surge in borrowing raises questions about the sustainability of current fiscal policies.
- Experts predict potential tax increases of £10 billion to £20 billion to address the deficit.
- The government's commitment to strict fiscal rules may lead to further spending cuts or tax hikes.
Political Context
- Chancellor Rachel Reeves faces pressure from both the public and her party to balance the budget while managing rising costs.
- The recent increase in national insurance contributions has not alleviated the borrowing issue, indicating deeper economic challenges.
Future Outlook
- With the Office for Budget Responsibility expected to revise forecasts, the government may need to adjust its fiscal strategy significantly.
- The potential for increased taxes or cuts to public services could impact economic growth and public sentiment.
What the papers say
According to The Independent, borrowing in May was £17.7 billion, slightly below economists' expectations of £18 billion. Rob Doody from the ONS noted that while tax receipts increased, spending rose even more due to inflation and rising costs. Meanwhile, Phillip Inman from The Guardian highlighted that the government is struggling to meet its fiscal targets, with backbench Labour MPs likely to rebel against proposed welfare cuts. Bloomberg reported that the total borrowing for the financial year so far stands at £37.7 billion, £1.6 billion higher than the previous year, indicating ongoing fiscal challenges. These insights suggest a complex interplay between government policy, economic performance, and public finance management.
How we got here
The rise in borrowing is attributed to increased spending and inflation-linked benefits, despite higher tax revenues from national insurance contributions implemented by Chancellor Rachel Reeves. The economic outlook has worsened, prompting concerns over fiscal stability.
Go deeper
- What are the implications of the borrowing increase?
- How might this affect future tax policies?
- What are the reactions from the Labour party regarding spending cuts?
Common question
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Rachel Jane Reeves is a British Labour Party politician serving as Shadow Chancellor of the Duchy of Lancaster and Shadow Minister for the Cabinet Office since 2020. She has been the Member of Parliament for Leeds West since 2010.
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The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom or Britain, is a sovereign country located off the northwestern coast of the European mainland.
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The Office for Budget Responsibility is a non-departmental public body funded by the UK Treasury, that the UK government established to provide independent economic forecasts and independent analysis of the public finances.
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The Office for National Statistics is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to the UK Parliament.
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National Westminster Bank, commonly known as NatWest, is a major retail and commercial bank in the United Kingdom. It was established in 1968 by the merger of National Provincial Bank and Westminster Bank.