Economists have warned that tax hikes from the Chancellor later this year “feel inevitable” following a surge in UK Government borrowing last month. The Office for National Statistics (ONS) reported that public sector net borrowing climbed to £20.2 billion, marking the fourth-highest April figure on record, which adds to the burden on Chancellor Rachel Reeves to adhere to her fiscal rules.
The state borrowing figure represents the gap between UK Government expenditure and its income, primarily from tax receipts. The latest data revealed that the Chancellor had to borrow more than anticipated for the month, exceeding the forecasted £17.6 billion by analysts.
This development occurs as Rachel Reeves aims to fulfil her objective of balancing day-to-day spending with revenues by the 2029/30 financial year, while also seeking to enhance public services and pursue faster economic growth. Economists suggest that the widened deficit, intentions to boost defence spending, and the reversal on Winter Fuel Payments might signal that future tax increases are necessary to ensure long-term balance in the state’s finances.
Ruth Gregory, deputy chief UK economist at Capital Economics, commented: “April’s public finances figures showed that despite the boost from the rise in employers’ national insurance (NI) contributions, the fiscal year got off to a poor start.”, reports the Daily Record.
“With the PM announcing a partial U-turn on the cut to winter fuel payments, the dilemma faced by the Chancellor over how to deal with increased spending pressures in an environment of low economic growth and high interest rates hasn’t gone away. With the markets seemingly uneasy about more public borrowing, further tax rises are starting to feel inevitable.”
Matt Swannell, chief economic adviser to the EY Item Club, commented that higher borrowing and pressure from US tariff plans on economic growth could “more than eliminate the slim headroom” against the rules.
He said: “A potential reversal of Winter Fuel Payment cuts and the likelihood that defence spending will need to rise again will make the fiscal arithmetic even more challenging and increase the pressure to generate more revenue through tax rises.”
The surge in borrowing was primarily attributed to increases in public sector pay, National Insurance contributions, and higher benefits and State Pensions. Earlier this year, the Labour Government declared that the Personal Allowance would remain fixed at £12,570 until the 2028/29 financial year.
Central government departmental expenditure on goods and services climbed by £4.2 billion year-on-year to £37.9 billion, driven by April salary hikes and cost inflation. Additionally, social benefits disbursed by the state went up by £1.3 billion to £26.8 billion following inflation-linked increments in numerous benefits.
Public sector net debt stood at 95.5% of the UK’s GDP at the end of April 2025, indicating a 0.7 percentage point increase from the previous year and maintaining levels not seen since the early 1960s.
Rob Doody, deputy director for public sector finances at the ONS, stated: “At £1 billion higher than the same time last year, this April’s borrowing was the fourth highest for the start of the financial year since monthly records began more than 30 years ago.
“Receipts were up on last April, thanks partly to the higher rate of national insurance contributions. However, this was outweighed by greater spending, due to rising public services’ running costs and increases in many benefits and state pensions.”
On Thursday, the ONS also revised down its borrowing figure for the latest fiscal year, to March 2025, by around £3.7 billion to £148.3 billion after receiving more information on tax receipts. This figure still exceeded the forecast set by the UK Government’s official forecaster, the Office for Budget Responsibility, by around £11 billion.
Chief Secretary to the Treasury Darren Jones commented: “After years of economic instability crippling the public purse, we have taken the decisions to stabilise our public finances, which has helped deliver four interest rate cuts since August, cutting the cost of borrowing for businesses and working people.
“We’re fixing the NHS, with three million more appointments to bring waiting lists down, rebuilding Britain with our landmark planning reforms and strengthening our borders, delivering on the priorities of the country through our Plan for Change.”
