Fears mount over Budget raids on ‘wealth’ and pensions after government borrowing hits new high – with Reeves vowing to take ‘necessary’ action

Rachel Reeves admitted today that the economy is ‘not working as it should’ as government borrowing reaches a new peak.

With a grim Budget looming, public sector net borrowing last month stood at £20.2bn; this is £1.6 billion higher than the same period the previous year.

The situation worsened in September 2020, when the country spent money to deal with the epidemic. The Conservative Party has warned that the situation is ‘out of control’, amid concerns borrowing will be £10bn higher than forecast this year.

At a conference in Birmingham, the Chancellor acknowledged ordinary Britons and businesses were suffering but denied the economy was ‘broken’.

Although he said people thought they were ‘putting more money into the state’ and ‘going out less’, he raised fears he would raid the ‘rich’ and pensioners.

‘We fixed the foundations of our economy in last year’s budget and brought stability back to our economy,’ he said.

‘And at next month’s Budget we will take the necessary steps to secure these foundations and stability for the future.’

It was also the latest attack on Brexit by a Labor Secretary, attacking ‘the costs that have, in my view, been unnecessarily added to businesses since 2016 and since we officially left the EU a few years ago’.

Labor MPs are calling for ‘wealth taxes’ to fill the fiscal gap and fund more spending.

Analysts had forecast borrowing of £20.8 billion in September, but the Treasury’s OBR watchdog had predicted a lower level of £20.1 billion.

Analysts had predicted borrowing of £20.8bn in September but the Treasury’s OBR watchdog predicts a lower level of £20.1bn

Pressure is intensifying on the Chancellor as the Budget approaches, with fears he will hit ‘the rich’ with another wave of tax rises, says ruthless official

Borrowing (the difference between public spending and tax revenue) stood at around £100bn between March and September; This is the second highest amount since monthly records began in 1993.

Worryingly for Ms Reeves, the figure is already £7.2bn above the OBR’s forecast for this year. Experts believe that in 2025-26 this figure could be around £10bn more than expected in March.

ONS chief economist Grant Fitzner said: ‘Last month we witnessed the highest September borrowing in five years. Interest on debt and the cost of providing public services and social benefits have increased compared to last year; this increase more than offset the increase in revenues from central government taxes and National Insurance contributions.

‘Likewise, the first six months of the financial year saw the highest overall deficit since 2020.’

Speaking at the Regional Investment Summit in Birmingham, Ms Reeves said: ‘Our economy is not broken but I accept that it is not working as it should for many people.

‘The bills are too high. Businesses often don’t have the tools they need to succeed, and people feel like they’re investing more but getting out less.

‘This needs to change. In last year’s budget, we strengthened the foundations of our economy and brought stability to our economy.

‘And in next month’s budget we will take the necessary steps to secure these foundations and stability for the future.

‘This is the future we must build, and we will build it by working hand in hand with business, setting direction through our modern industrial strategy and 10-year infrastructure strategy, building a new relationship between business and Government to tackle the barriers to our competitiveness and provide certainty for investment.’

Nick Ridpath, of the Institute for Fiscal Studies (IFS) think tank, said: ‘Today’s data shows government borrowing in the first half of the year exceeded the OBR’s March forecast.

‘This is despite the size of the economy exceeding expectations, particularly the size of cash as inflation remains high.

‘Normally we would expect this to come with higher tax revenues, but this fiscal boost has not materialised, at least not yet.

‘These data will be reviewed again and we should avoid drawing firm conclusions based on noisy monthly data.

‘But if this pattern continues and economic growth generates less tax revenue than we would normally expect, this could worsen the fiscal arithmetic the Chancellor faces in the November Budget and beyond.’

Debt interest was one of the factors that increased the government’s borrowing problem

Berenberg economist Andrew Wishart said higher spending and borrowing would divert the Chancellor from his target of funding current spending entirely with tax revenue by 2029-30.

‘Getting back on track to meet this target is likely to require around £25bn of tax increases and/or spending cuts in the 26 November budget, with another £10bn required to create a reserve against unexpected deficits, similar to the £10bn margin included in the March 2025 budget,’ he said.

John Wyn-Evans, Head of Market Analysis at Rathbones, said: ‘The latest public sector borrowing figures continue to put pressure on the nation’s finances…

‘Taxes look likely to have to rise by £25 billion or more when we factor in the possible downgrade to the OBR’s long-term growth forecasts, which will inform Chancellor Rachel Reeves’ Budget decision-making.

‘Although many would like to see this figure reduced through spending cuts, the mood in the Labor Party does not seem to be very hopeful on this issue.’

Nigel Green, chief executive of global financial consultancy giant deVere Group, warned that pensions could be in Ms Reeves’ crosshairs.

‘While borrowing has gone well beyond expectations, growth remains stable and debt servicing costs are taking a larger share of national income,’ he said.

‘When the Treasury finds itself under such pressure, pensions often come first. ‘They are seen as an easy source of income that can be tapped quickly, even if the long-term consequences are serious.’

He added: ‘From benefit freezes to lifetime limit changes, history shows pensioners are the easiest targets.

‘The political calculation is that they are less likely to change their financial arrangements or take to the streets; But this calculation underestimates how much trust and capital is destroyed in the process.’