In April, Chancellor Rachel Reeves faced mounting pressure as higher-than-expected borrowing figures were revealed. The Office for National Statistics (ONS) reported that borrowing stood at £20.2bn, a £1bn increase from the previous year and the fourth highest figure for April since records began in 1993. This development has led experts to speculate that taxes may need to be raised in the autumn to meet the government’s economic targets.
Economists like Thomas Pugh from RSM UK and Matt Swannell from EY ITEM Club anticipate a combination of higher taxes and increased borrowing in the upcoming Budget. Factors contributing to the rise in tax receipts include spikes in National Insurance contributions paid by employers. On the expenditure side, government spending has also surged due to pay raises, inflation-related costs, and upticks in pensions and benefits. The ONS revised borrowing figures for the fiscal year ending in March to £148.3bn, which is £3.7bn lower than previously estimated but still £11bn above projections by the Office for Budget Responsibility.
While analysts had forecast borrowing at £17.9bn, the actual figures have prompted reactions from Treasury officials and economists alike. Chief Secretary to the Treasury Darren Jones emphasized the government’s efforts to stabilize public finances amidst economic instability. However, Ruth Gregory from Capital Economics warned of the increased likelihood of tax hikes in the autumn Budget due to a sluggish economic outlook. The ongoing dilemma faced by the chancellor, exacerbated by recent policy reversals such as winter fuel payment cuts, hints at an impending need for further tax increases. Opposition voices, including Conservative shadow chancellor Mel Stride and Liberal Democrat Treasury spokesperson Daisy Cooper, have criticized the handling of the economy, pointing to concerns about escalating public borrowing and fiscal missteps
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