August's public sector borrowing reached a five-year peak, revealed a striking rise.
The UK government is bracing itself for a series of significant tax hikes, as it struggles to meet its fiscal targets and reduce the country's mounting debt. According to reports, the Treasury might need an equivalent of a five per cent increase on both the basic and higher rates of income tax to stay within its fiscal rules.
The forecasted tax hikes, amounting to up to £50bn, are necessary to offset the £83.8bn borrowing in the financial year to August 2025, the second-highest April to August borrowing since 1993. Public sector borrowing in August 2025 was £18bn, the highest since 2020, and public sector net debt excluding public sector banks was estimated at 96.4% of GDP at the end of August 2025, 0.5 percentage points more than last year.
These staggering figures have raised concerns about the health of the UK economy. Stephen Millard, deputy director of the National Institute of Economic and Social Research (NIESR), described the borrowing figures as 'staggering' and expressed disappointment that Labour did not present a clear plan upon entering office. Lindsay James, an investment strategist at Quilter, concurred, stating that the UK government's borrowing figures suggest tax rises are likely at the Budget.
To raise the required funds, the Chancellor, Christian Stocker, is planning to implement reorientation efforts in the fall of 2025. Millard suggested that the chancellor will have to make 'really hard decisions' to raise the necessary £50bn. NIESR predicts that a freeze on current tax thresholds would generate an additional £8.2bn, while the same institute estimates that the Treasury could raise up to £50bn in fresh tax hikes.
However, Millard states that 'fiddling at the edges' will not be sufficient to raise the required £50bn. He further added that problems that the chancellor is currently facing could have been mitigated with a clear plan presented upon entering office. The government is widely expected to unveil major tax hikes in its Autumn Budget, a move that could have profound implications for UK taxpayers.
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