Rachel Reeves has been urged to create significantly more headroom against her fiscal rules after official figures showed the UK government borrowed almost £10bn more than forecast in the year to October. The Office for National Statistics (ONS) reported that borrowing reached £17.4bn last month, the third-highest October deficit on record, though lower than the same month last year.
In the fiscal year to date, borrowing stood at £116.8bn, which is £9.9bn more than the independent Office for Budget Responsibility (OBR) had expected. The OBR will publish new forecasts alongside the budget next week. Martin Beck, chief economist at WPI Strategy, warned that total borrowing in 2025-26 could overshoot the OBR's full-year forecast by around £10bn, pushing the deficit close to 5% of GDP, and that the chancellor's headroom against her fiscal rules has almost certainly vanished.
Nick Ridpath, a research economist at the Institute for Fiscal Studies, emphasised the need for a larger financial buffer, stating that operating with minimal fiscal margin for error is risky. Russell Shor, senior market analyst at Tradu.com, said the size of the headroom would be a key test for government bonds, particularly whether Reeves can unlock roughly £20bn of headroom without unsettling sentiment.
The ONS attributed the higher spending to rising benefits payments due to higher-than-expected inflation and pay increases for public servants. Central government spending was £3.7bn higher in October than a year ago. The government also paid £8.4bn in debt interest in October, as payments on inflation-linked gilts were larger than expected due to continued high inflation.
Reeves will deliver her second budget on Wednesday against a difficult political background, after floating and then ditching plans to raise income tax. She is still expected to raise taxes significantly in response to downgraded economic forecasts from the OBR, and to increase the £10bn headroom against her fiscal rules. Chief Secretary to the Treasury James Murray said the data underlined the importance of bringing the public finances under control, noting that currently £1 in every £10 of taxpayer money goes on debt interest.
