Government was forced to borrow more last month than in any May on record outside the national emergency of the pandemic as public spending surged.
Latest figures from the Office for National Statistics show public borrowing hit £17.7 billion in May, up from £17 billion in 2024.
This was despite extra tax revenue pouring in from the hike in employer National Insurance rates in April and raises the chances of further tax hikes in the Autumn Budget
It was the second-highest May borrowing total since monthly records began in 1993, after that exceeded only by May 2020 in the depths of the first Covid lockdown.
The Government borrows by issuing bonds - known as gilts - when its revenues from taxes are not big enough to pay for public spending.
Borrowing in the current financial year has already reached £37.7 billion; which is £1.6 billion more than in the same two-month period of 2024 and the third-highest for the period since monthly records began, after those of 2020 and 2021.
Central government's current expenditure reached £184.2 billion in the first two months of the financial year, up £9.5 billion on last year.
This was due to pay rises for civil servants and higher running costs and inflation linked increases on benefits and earning linked roses in pensions.
Central government's current receipts were £165.1 billion, up £10 billion more than in the same two-month period a year ago. National Insurance receipts swelled by £3.9 billion to £30.2 billion following the changes to the rate of National Insurance contributions paid by employers.
Darren Jones, Chief Secretary to the Treasury, said: “Since taking office, we have taken the right decisions to protect working people, begin repairing the NHS, and fix the foundations to rebuild Britain.
“We stabilised the economy and the public finances; now we need to ensure that the British economy delivers for working people.”
Thomas Pugh, economist at consulting firm RSM UK said: “Looking ahead to the budget in the autumn, the under performance of the economy and higher borrowing costs mean the chancellor may already have lost the £9.9bn of fiscal headroom that she clawed back in March.
“Throw in the tough outlook for many government departments announced in the spending review and u-turns on welfare spending and the chancellor will probably have to announce some top-up tax increases after the summer.”
Alex Kerr, UK economist at forecasters Capital Economics, said:” We doubt it will get much better for the Chancellor anytime soon, as her £9.9 billion buffer against her fiscal mandate may be wiped out at the Autumn Budget.
“The U-turns on benefit and welfare spending, downward revisions to the OBR’s productivity forecasts and higher borrowing costs may mean to maintain her buffer, Reeves has to raise £13-23 billion later this year. And with the gilt market sensitive to significant increases in borrowing, all this means tax rises are looking increasingly likely.
“We are pencilling in tax increases of £10-£20 billion. The good news is that with interest rates likely to be around 4% at the time of the budget there is plenty of scope for the Bank of England to cut rates to offset the impact of any fiscal consolidation on the economy.”
Bernard Meyer, ecommerce expert at marketing platform Omnisend, said: “With inflation stubborn, interest rates high and various Government tax hikes feeding through, confidence and sales on the UK high street are low. Very low.
“While April was boosted by the strong weather, the low front of harsh economic reality moved in during May. Sales are stuttering as demand from under-pressure consumers weakens.
“On top of that, many retailers are dealing with additional costs from the NI increases, compounding their misery. Meanwhile, the Pound is under pressure and geopolitical uncertainty has the potential to weigh down on supply chains.
“Retailers want certainty but all they’ve been delivered is radical uncertainty.
“On top of that, many e-commerce businesses are investing heavily in cybersecurity to shore up their defences from hacking attempts. In many cases, that money is being taken from marketing budgets, which could also be impacting sales.
“Even online sales fell for the second consecutive month, which suggests a deeper malaise among UK consumers, as that’s the easiest way to purchase.
“This is not the data the UK high street wanted to see as we head into the summer and suggests an ominous 2025 for the UK high street.”
This article was written by Jonathan Prynn from The Evening Standard and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.