Government borrowing in the UK increased more than expected, putting pressure on Chancellor of the Exchequer Rachel Reeves.
In June, borrowing rose by £6.6 billion compared to the same period last year, reaching £20.7 billion.
This increase stemmed from rising public utility spending and debt interest payments, exceeding other tax revenues. Analysts say that following the government’s reversal of previous social welfare cuts, it is becoming increasingly likely that Reeves will implement tax increases in the October Budget. This borrowing was the second highest June borrowing figure recorded since 1993. Only June 2020 showed higher borrowing due to the pandemic.KPMG UK Chief Economist Dennis Tatarkov said, “These figures increase pressure on public finances. The long-term outlook for public finances remains challenging. The rollback of social welfare and growth challenges could lead to a mismatch with fiscal targets, potentially requiring further tax increases or spending cuts.”
Interest payments on government debt rose to £16.4 billion in June 2025, almost double the amount from the same period last year. This increase occurred as some government debt became more dependent on inflation rates.
First quarter borrowing reached £57.8 billion, an increase of £7.5 billion compared to the same period in 2024. However, this figure is consistent with the forecasts of the independent forecaster, the Bureau.
Capital Economics economist Alex Kerr said, “Things will likely get even worse for the Chancellor of the Exchequer.” “A tax increase of between £15-25 billion may be necessary in this year’s budget.”
Reeves stated in October that he did not rule out tax increases to finance government spending. However, tax increases seem inevitable for the government to meet its fiscal targets.
