Rachel Reeves is facing renewed pressure over Labour’s economic credibility following the release of fresh borrowing figures that exceeded expectations.
By: Zahra Jawad
Government borrowing hit £20.2 billion in April, almost £1 billion higher than the same month in 2024 and well above the £17.9 billion forecast by economists.
The rise in borrowing, has cast doubt over the fiscal “headroom” Labour was counting on, giving room for their critiques to bite back with more scrutiny as the promise of economic prosperity dwindles. Bloomberg economics calculated Reeves has had £5bn wiped off her headroom less than 48 hours after she delivered her spring statement.
These figures come amidst a time where the UK struggles with an ongoing cost of living crisis and a rising national debt. The total national debt has been recorded to exceed over £2 trillion, currently standing at an eye watering £2.8 trillion, with the figures exhibiting numbers not seen since the 1960s – bringing to light the seriousness of the borrowing situation.
At the heart of the issue lies a growing disconnect between government spending plans and the reality of Britain’s economic landscape. With borrowing repeatedly overshooting forecasts, it raises a critical question: is the current fiscal framework still fit for purpose or is something fundamentally broken?
The answer lies sits between an intersection of economic climate, policy and spending – with a chunk of the fiscal challenge being blamed on an increased in public spend and inflation. Government spending on goods and services jumped by £4.2 billion year-on-year, reaching a total of £37.9 billion, with the ONS attributing this to public sector pay toward NHS, civil servants and education.
The increased spend comes due to the rise in inflation, which the UK has been battling with since Russia’s invasion of Ukraine and a post-covid economy. Alongside this, the rise in government spending on social benefits, increased by £1.3 billion year-on-year to reach £26.8 billion. This was also due to an inflation linked uplift which saw the increase being applied to benefits and state pensions.
Under UK law welfare payments are automatically adjusted in line with inflation using the universal CPI metric, protecting the recipients purchasing power when inflation reaches stubbornly high rates, with such costs being described as a non-discretionary fiscal burden – difficult to cut in the short term.
April’s borrowing does seem puzzling, Afterall, tax revenue is rising. Central government receipts from financial year ending 2025 reached £1,035.8 billion, an increase of £37.9 billion compared to the previous year. the tax rises brought in an additional £5.4 billion as well as tax corporations bringing out £3.2 billion.
The problem is not just a one-off blip, but rather a structural fiscal gap that needs to be remedied immediately. Key spending areas like health, education, and welfare have automatic inflation-adjusted mechanisms, meaning they grow without needing a political decision and in a sluggish economy, rising tax still won’t keep up.
Mel Stride, the shadow chancellor, told the Guardian: “Instead of reining in spending, the Labour chancellor has piled billions onto the national debt by fiddling the fiscal rules and maxing out the national credit card.”
Reeves will face challenges in the days to come as managing public finances within an economy rattled by uncertainty is no easy task.
