2 weeks Ago By Rory Poulter
Rachel Reeves is facing a tax nightmare as her attempts to plug gaps in the UK finances face huge strains. The Chancellor is under mounting pressure to hike taxes this autumn after the Treasury’s borrowing spiralled far beyond forecasts – with experts warning that Britain’s fragile finances are now at breaking point. In a sign of the storm ahead, public sector borrowing surged to £151.
9bn in the year to March – a £14.6bn overshoot of the Office for Budget Responsibility’s (OBR) own projections made just last month. Figures from the Office for National Statistics (ONS) laid bare the scale of the Chancellor’s fiscal headache, revealing the third-highest March borrowing on record, at £16.
4bn – £2.8bn more than in the same month last year. The grim numbers will add fuel to growing fears that the autumn Budget could bring punishing tax rises for hard-working families, with experts warning Reeves is running out of options.
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “This raises the chances that if the Chancellor wishes to stick to her fiscal rules, more tax hikes in the autumn Budget will be required.” She added: “Further bad news for the Chancellor is on the way. The rise in borrowing costs since March has already whittled down the headroom against the fiscal mandate from £9.
9bn to £7.7bn. “All of this means that Reeves may not be too far away from having to raise money again in the Autumn Budget, by cutting spending and/or raising taxes, to meet her fiscal rules.
” The IMF has also dealt Reeves a fresh blow, slashing the UK’s growth forecast to just 1.1% this year – a significant downgrade from the 1.6% predicted just months ago.
A toxic mix of Donald Trump ’s tariff war, soaring inflation and anaemic consumer spending was blamed. The warnings come as the Chancellor holds crunch meetings in Washington, vowing to “defend British interests” – but back home, Britain’s economic outlook is darkening by the day. The ONS confirmed the UK’s national debt has soared to £2.
8 trillion, equivalent to £95,300 per household. Debt now stands at 95.8% of GDP, levels not seen since the 1960s.
Alison Ring of the Institute of Chartered Accountants in England and Wales (ICAEW) said: “Today’s numbers show that the reality is much worse than the £22bn ‘black hole’ in the 2024/25 budget identified by the incoming government last summer. “The Chancellor will be relieved that the 2024/25 financial year is now firmly behind her. But the public finances remain vulnerable to economic headwinds caused by those tax rises that, together with a global trade war, are likely to put significant pressure on the Chancellor.
” And there’s worse to come. The EY ITEM Club, one of the UK’s top economic forecasting bodies, has warned that the full impact of US tariffs has yet to be felt, but could leave the Chancellor little choice but to return to the tax lever. Matt Swannell, its Chief Economic Advisor, said: “The Chancellor’s Spring Statement only left a slim margin for error against the fiscal rules.
Most of this will likely be used up as reduced access to a major export market, a weaker global economy and lingering uncertainty hold back growth. “Even before recent tariff announcements, we viewed the Spring Statement as a stop gap that left a lot of the big fiscal questions unanswered. At its next fiscal event in the autumn, the Government will likely have to raise taxes or bend its fiscal rules.
” Economists at the Institute for Fiscal Studies (IFS) piled on further pressure, warning the Chancellor is clinging to her fiscal rules “by a hair’s breadth.” Nick Ridpath at the IFS said: “This serves to highlight the uncertainty surrounding these – or indeed any – fiscal forecasts. “Today’s data highlights the clear risk that is being taken with that strategy.
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