UK public finances falter as record borrowing, weak growth, and rising pensions challenge Reeves’ plans for fiscal balance by 2029

As the UK grapples with economic uncertainty, Chancellor Rachel Reeves is finding herself in increasingly hot water.

Just when it seemed like her new tax policies might bring some relief to the government’s finances, fresh data is painting a grimmer picture.

Borrowing Surges Beyond Expectations

In April, government borrowing surged to £20.2 billion—a sharp rise from the £17.6 billion forecasted by analysts.

This figure is not only higher than the same time last year by a billion pounds, but it’s also one of the highest monthly borrowing amounts outside of the pandemic era.

The only comparable figure was back in April 2012, skewed by the Royal Mail’s privatisation.

Despite Reeves’ recent move to increase employer national insurance contributions, the increased revenue wasn’t enough to offset massive spikes in government spending.

According to the Office for National Statistics (ONS), this makes April 2025 the fourth highest borrowing month to start a financial year in over three decades.

Economic Growth Hits a Wall

The UK’s economic momentum has also taken a hit.

The latest Purchasing Managers’ Index (PMI) reading came in at 49.4, only a slight improvement from 48.5 in April.

A score below 50 means contraction—so the economy is essentially stagnant for the second month in a row.

While the services sector managed a modest rebound, manufacturing struggled, contracting at its fastest pace since October 2023.

Business leaders noted that while U.S. trade tensions have slightly eased—thanks to a new tariff deal involving steel and automotive exports—overall confidence remains weak.

Companies are still jittery, especially as higher employer taxes introduced in April continue to bite.

Job Cuts Accelerate in Manufacturing

The impact of these economic pressures is being felt most harshly in manufacturing.

Job cuts have hit their fastest pace in five years, as employers grapple with rising costs, including increased national insurance and minimum wage requirements.

Chris Williamson from S&P Global summed it up bluntly: “After a dreadful April, May was only slightly better.

The sunshine helped in some areas, but overall, business output declined again.

The outlook for the next year remains cloudy, and companies are still trimming their workforce in response to weak demand.”

Government Spending Outpaces Income

Even though April brought in more tax revenue—thanks to hikes like the employer NI increase—the gains were overshadowed by rising expenditures.

Spending by government departments on goods and services jumped £4.2 billion year-on-year, driven by inflation and pay rises across the public sector.

Additionally, benefits and state pensions saw a £1.3 billion increase, as inflation adjustments kicked in.

This pushed the UK’s public sector net debt to 95.5% of GDP, a level not seen since the early 1960s.

Reeves Faces Growing Political Pressure

While Reeves is away in Canada for a G7 summit, pressure is mounting back home.

Critics are questioning whether she can stick to her fiscal rule of balancing day-to-day spending with income by 2029–30.

To make matters worse, Labour leader Keir Starmer just announced a partial rollback of cuts to the winter fuel allowance for pensioners—a politically unpopular policy that Reeves had hoped would save billions.

That reversal could now create even more financial strain.

There’s also talk that Deputy Leader Angela Rayner pushed Reeves to raise taxes on wealth and savings before the Spring Statement—a move that may resurface as the Chancellor searches for new revenue sources.

Warning Signs from Economists

Experts are sounding the alarm.

Ruth Gregory, a senior economist at Capital Economics, noted that the government’s books are off to a rough start, and the return of winter fuel payments will only add to spending pressures.

With the economy struggling and borrowing costs still high, further tax increases may be the only way to keep the government afloat.

“Markets are already uneasy,” she said.

“So unless growth picks up significantly, more tax hikes seem inevitable.”

Matt Swannell from the EY Item Club added that the government’s slim budget margins could vanish entirely if borrowing keeps rising—especially if defence spending also goes up again.

What’s Next?

The big question now: How will Reeves respond?

With the UK economy stalling, debt levels rising, and public expectations high, the Chancellor has some tough choices ahead.

Will she introduce more tax hikes? Cut spending further? Or gamble on growth and risk market backlash?

Whatever she decides, one thing is clear—the road ahead won’t be easy.