The UK government borrowed more than expected in February, increasing financial pressure on Chancellor Rachel Reeves ahead of her crucial Spring Statement next week.
Higher-Than-Expected Borrowing
According to official figures, government borrowing—the difference between public spending and tax revenue—stood at £10.7 billion last month. This was significantly higher than the £6.5 billion forecast by the Office for Budget Responsibility (OBR), the government’s independent fiscal watchdog.
With borrowing exceeding expectations, Reeves faces tough decisions as she prepares to unveil economic measures next week. The Treasury has reaffirmed that the Chancellor remains committed to her fiscal rules.
“We must go further and faster to create an agile and productive state that works for people,” said Darren Jones, Chief Secretary to the Treasury, adding that the government “will never play fast and loose with the public finances.”
Challenges for the Chancellor
Economists warn that the latest borrowing figures could make it more difficult for Reeves to meet her self-imposed fiscal targets.
Senior economist Dennis Tatarkov from KPMG noted that the higher deficit increases the risk of the Chancellor failing to meet her borrowing rules. These rules include not borrowing for day-to-day public spending and ensuring that debt falls as a share of economic output by 2029/30.
Isabel Stockton, a senior researcher at the Institute for Fiscal Studies, said Reeves had “boxed herself in” with commitments to fiscal targets, a pledge not to raise taxes further, and a promise not to reintroduce austerity measures for public services. “Easy or risk-free options for the Chancellor are in short supply,” she warned.
Alex Kerr, an economist at Capital Economics, predicted further spending cuts beyond those already announced, including reductions in welfare spending.
Spending Cuts and Welfare Reforms
At the Budget in October, the OBR estimated Reeves had a £9.9 billion buffer within her borrowing rules. However, analysts believe that next week’s statement will show that this margin has been “wiped out.”
Pantheon Macroeconomics forecasted that the UK’s weak public finances would result in spending cuts in the Spring Statement, while additional tax increases could be introduced in October.
Earlier this week, the government announced major welfare system changes aimed at saving £5 billion annually. These include stricter assessments for Personal Independence Payments (PIP), potentially affecting hundreds of thousands of claimants, and a freeze on incapacity benefits at £97 per week until 2029/30.
Additionally, Prime Minister Rishi Sunak confirmed plans to scrap NHS England and other arms-length government bodies in an effort to streamline public spending.
Political Reactions and Future Plans
Despite these austerity measures, the government has pledged to increase defence spending. However, this will be funded by reallocating money from the international aid budget rather than new tax revenue.
Liberal Democrat Treasury spokesperson Daisy Cooper criticized the latest borrowing figures as “yet another major blow to the Chancellor’s faltering plan for growth.” She argued that Reeves’ economic strategy was “simply not working” and warned that upcoming National Insurance increases for employers—due to take effect in April—would “hammer small businesses.”
With the Spring Statement looming, all eyes are on Chancellor Reeves as she navigates mounting fiscal challenges and growing political pressure.
