Chancellor Rachel Reeves faces mounting pressure over the UK's financial health as new official data reveals government borrowing significantly outstripped forecasts last month, creating a challenging backdrop for next week's crucial Budget announcement.
October Borrowing Exceeds Expectations
The Office for National Statistics reported that public sector borrowing reached £17.4 billion in October, marking the third highest level for that month since records began. Although this figure represents a £1.8 billion reduction compared to October last year, it substantially exceeded both economists' predictions of £15 billion and the Office for Budget Responsibility's March forecast of £14.4 billion.
Looking at the broader financial picture, borrowing for the first seven months of the current financial year totalled £116.8 billion, equivalent to approximately 3.9% of the UK's total economic output. This year-to-date figure stands £9 billion higher than the same period last year and £9.9 billion above the OBR's spring projections.
Budget Implications and Political Pressure
With the November 26 Budget rapidly approaching, these figures intensify the challenge for Ms Reeves, who must address what some economists estimate as a £50 billion black hole in Britain's public finances. While the government appears to have retreated from earlier considerations of income tax increases, experts anticipate alternative revenue-raising measures to tackle the shortfall and maintain the Chancellor's fiscal targets.
Treasury Chief Secretary James Murray emphasised that next week's Budget would outline the government's strategy to reduce national debt. "Currently, we spend £1 in every £10 of taxpayer money on the interest of our national debt," he stated. "That money should be going to our schools, hospitals, police and armed forces."
Mr Murray added that the government aims to deliver "the largest primary deficit reduction in both the G7 and G20 over the next five years" to lower borrowing costs.
Economic Context and Expert Analysis
The ONS data revealed some positive developments amidst the concerning borrowing figures. Public sector net debt, excluding Bank of England liabilities, reached £2.77 trillion at October's end, representing around 90% of GDP. This marks a 0.2 percentage point decrease from the previous year, though debt levels remain at heights not seen since the early 1960s.
Debt interest payments provided some relief, declining by £900 million to £8.4 billion last month. This reduction stems from the connection between government borrowing costs and Retail Prices Index inflation, which has moderated in recent months.
ONS chief economist Grant Fitzner noted that "increased receipts from taxes and national insurance contributions" had helped offset higher spending on public services and benefits compared to October last year. Specifically, National Insurance contributions rose by £2.8 billion to £16.9 billion following April's increase in employer contribution rates.
Martin Beck, chief economist at WPI Strategy, warned that "total borrowing in 2025/26 could overshoot the OBR's full-year forecast by around £10 billion," potentially pushing the deficit close to 5% of GDP. He suggested that combined with policy changes, market movements, and deteriorating productivity outlook, "the Chancellor's headroom against her fiscal rules has almost certainly vanished."
Mr Beck predicted that "tax rises are inevitable" given the government's apparent reluctance to implement spending restraint, though he noted the Chancellor seems poised to rely on "a 'smorgasbord' of smaller tax increases" rather than broad income tax hikes.
Shadow chancellor Sir Mel Stride criticised the government's approach, stating: "Borrowing so far this year has been the highest on record outside the pandemic." He argued that "if Labour had any backbone, they would control spending to avoid tax rises next week."
The stage is now set for a critical Budget announcement that will determine the government's approach to managing the nation's finances amid these challenging economic circumstances.
