UK Government Faces Tax Hike or Spending Cut Pressure as Borrowing Surges

The UK government is facing growing pressure to either raise taxes or implement spending cuts, following higher-than-expected borrowing and lower tax receipts, just days ahead of Chancellor Rachel Reeves’ spring statement.

New figures from the Office for National Statistics (ONS) reveal that government borrowing in February reached £10.7 billion, significantly above forecasts and £4.1 billion higher than predicted by economists surveyed by Reuters.

This brings total borrowing for the financial year so far to £132.2 billion, up from £117.5 billion last year—a sharp £15 billion increase.

The gap between the government’s income and expenditure is widening at a worrisome rate. Tax revenues are £11.4 billion lower than the Office for Budget Responsibility (OBR) projected, while overall borrowing is £20.4 billion higher than expected.

This places the UK’s public finances in what experts have called a "perilous" position. The Resolution Foundation, a leading economic think-tank, warned that unless the economy recovers soon, tax increases will likely return to the political agenda.

The timing is particularly troubling for Chancellor Reeves, who is preparing to deliver the spring statement next week. A previously reported budget surplus has now been revised down by £2.1 billion, compounding the fiscal challenges.

Analysts at Pantheon Macroeconomics anticipate that the spring statement will include immediate spending cuts, while new tax measures could be introduced in the upcoming October budget.

The worsening state of the public finances also challenges the government’s stated commitment to tight spending controls, further complicating its ability to balance economic recovery with fiscal discipline.

With mounting borrowing costs and underperforming tax revenues, Chancellor Reeves now faces a difficult political and economic balancing act, one that could shape the UK's fiscal direction for years to come.
Source: Sky news