In a stark illustration of spiralling public finances under Labour, new figures from the Office for National Statistics (ONS) show the Treasury borrowed £20.7 billion in June alone — a record high for the month.
That’s £6.6 billion more than in June last year and £3.5 billion higher than the Office for Budget Responsibility (OBR) had forecast.
This single-month overspend exceeds the total revenue Rachel Reeves has raised from all of her tax hikes combined, raising serious questions about her grip on the public purse.
The spike in borrowing has triggered concerns across the political and financial spectrum that the Chancellor is “spending money she doesn’t have”, as former cabinet minister Mel Stride warned. Stride also pointed out that debt interest now costs taxpayers £100 billion annually — nearly double the defence budget — and could rise to £130 billion under Labour.
“Labour’s jobs tax and reckless borrowing is killing growth and fuelling inflation – paving the way for more tax hikes and more borrowing in the autumn,” Stride added. “Working families will pay the price for Labour’s failure and costly U-turns.”
Economy Shrinking, Tax Revenues Falling
The economic backdrop paints an equally grim picture. As growth stagnates and investor confidence falters, tax receipts are falling — yet government spending is rising. As a result, Rachel Reeves now faces a potential £30 billion black hole in the public finances ahead of her first Autumn Budget.
ONS acting chief economist Richard Heys explained the surge in borrowing in The Telegraph, saying:
“The rising costs of providing public services and a large rise this month in the interest payable on index-linked gilts pushed up overall spending more than the increases in income from taxes and National Insurance contributions.”
Even the extra £3.1 billion raised from Reeves’s hike to employer National Insurance contributions was dwarfed by the £8.4 billion rise in debt servicing costs, which hit £16.4 billion in June.
Dennis Tatarkov of KPMG UK noted: “Higher than expected interest payments as well as weaker revenues have pushed borrowing above the OBR’s projection for the second month in a row.”
Investors Lose Confidence, Markets React
Markets have responded sharply. Bond investors sold off UK gilts, sending 10-year yields surging to 4.64%, outpacing rises in the US and Germany. This surge in borrowing costs has battered housebuilders and raised fears that interest rates will remain higher for longer.
“Housebuilders were knocked by the public sector finance figures as the rise in gilt yields suggests the market believes interest rates could stay higher for longer,” said AJ Bell’s Russ Mould.
The FTSE 100 dipped by 0.1%, and the pound slipped 0.1% against both the dollar and the euro, reflecting market anxiety over Reeves’s expected tax hikes.
Tax Hikes on the Horizon — or Worse
With her fiscal rules still technically in place and no plans to reopen departmental budgets, Reeves appears to have cornered herself. Economists now predict a new round of tax rises in the autumn, with speculation of a raid on pensions, “sin taxes”, and an extension of frozen income tax thresholds into 2029.
Rob Wood of Pantheon Macroeconomics said: “We expect ‘sin tax’ and duty hikes, freezing income tax thresholds for an extra year in 2029 and a pensions tax raid… to fill most of the hole.”
Angela Rayner is pushing for local councils to introduce tourist taxes, while Labour backbenchers are urging Reeves to introduce a wealth tax, adding to concerns of tax creep across the economy.
Meanwhile, business confidence remains fragile. Former business secretary Andrew Griffith offered a withering assessment:
“This level of borrowing is not remotely ‘unexpected’ given the out of her depth Chancellor. She is no more capable of balancing her books than a first year undergrad in freshers week.”
Conclusion: Economic Madness and Political Naivety
The numbers are unambiguous. Labour’s first three months in charge have seen borrowing explode, growth retreat, interest costs spiral, and tax receipts falter. The Chancellor, by her own admission, is boxed in by rules she refuses to amend and spending promises she refuses to break.
In Reeves’s own words, she is “committed to her fiscal rules” — but that commitment now looks increasingly like an economic straitjacket. With a shrinking economy and soaring borrowing, Labour’s approach appears to be not just unsustainable, but reckless.
One thing is clear: Rachel Reeves is in deep — and so far, she’s sinking.
