UK budget deficit widens in April despite tax hike
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The news: UK borrowing costs increased in April, the first month of the UK fiscal year, adding pressure on Chancellor Rachel Reeves ahead of next month’s spending review.
The numbers: Data published by the UK’s Office for National Statistics saw borrowing reach £20.2 billion ($42.1 billion) in April, up from £19.1 billion in April last year, making it the highest for the month on record (excluding pandemic years 2020-2021).
Reuters economists had forecast that the difference between public sector spending and income would fall to £17.9 billion in April, however, a surge in spending on public services and benefits drove up the overshoot.
The context: UK borrowing rose despite a controversial £26 billion hike in employer payroll taxes brought in by Reeves which came into effect last month, as well as lower debt-interest costs.
Reeves has battled to keep costs down since Labour won a landslide election in July last year, vowing to commit to iron-clad fiscal rules that rein-in day-to-day spending. Reeves had to scrounge up over £10 billion of savings earlier this year, to ensure her £9.9 billion fiscal buffer after higher borrowing costs saw it all but wiped out.
This week, UK PM Keir Starmer added a fresh challenge to Reeves’ plate with his about face on winter fuel subsidies, deciding to scale back a planned £1.7 billion reduction to winter fuel subsidies for pensioners.
On 11 June, Reeves will set out detailed expenditure plans for individual government departments at what will be a high-stakes spending review.
The sources: Office for National Statistics, Bloomberg, FT
