Analysis: Autumn tax rises loom as government borrowing rises in June

The economic outlook for autumn looks bleak and tax rises likely, as ITV News Economics Editor Joel Hills explains.

The government borrowed £20.7 billion in June - £6.6 billion more than the same month last year, and far above the £16.5 billion City economists had forecast.

In fact, it was the second highest June borrowing figure on record, according to the Office for National Statistics, which began tracking monthly borrowing in 1993.

On the face of it, the detail is as troubling as the headline number.

  • Income tax receipts fell short, reflecting the economy’s sluggish performance

  • Public service spending was £2 billion higher than the Office for Budget Responsibility had pencilled in

  • And inflation pushed debt repayments up to £16.4 billion - double what was paid in June last year

June’s numbers look dreadful. But despite the overshoot, borrowing for the first quarter of the financial year (April–June) is more or less bang in line with the OBR’s forecast.

The OBR estimates that borrowing in the first three months of 2025-26 will total £57.8 billion. Credit: OBR

Even so, the outlook for autumn is dark.

Capital Economics warns that the government’s failure to deliver planned welfare cuts - and its assumption that borrowing will continue to overshoot - means the chancellor will need to find £15–25 billion in the Autumn Budget.

“We doubt the gilt market will tolerate a significant increase in borrowing,” Alex Kerr said.

“She will probably have to raise taxes instead.”

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Pantheon Macroeconomics agrees. While lower inflation in May should reduce debt servicing costs, the government’s U-turn on welfare cuts and the growing pressure to spend more on defence leave Rachel Reeves facing “a major problem”.

Chancellor Rachel Reeves is facing “a major problem”, as Joel Hills explains. Credit: PA

Pantheon puts the size of the fiscal hole at £20 billion.“We are committed to tough fiscal rules, so we do not borrow for day-to-day spending and get debt down as a share of our economy,” said Darren Jones, Chief Secretary to the Treasury, in response to the June numbers. “This commitment to economic stability means we can get on with investing in Britain’s renewal."Layer together policy reversals, rising borrowing costs - yields on UK government debt have risen even after four interest rate cuts since October - and a spluttering economy, and the chancellor is being pushed towards unpopular, difficult decisions to avoid breaking the “ironclad” rules she made herself.Rachel Reeves’ unlucky streak continues.

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