Economists warned that the pressure is intensifying on Andy Burnham after new figures showed government borrowing racing past expectations.
The public sector borrowed £18.3billion in August—roughly 20 per cent more than during the same month in 2025—as higher tax receipts failed to match Labour’s spending.
The total was about £3billion above forecasts and £3.5billion higher than the figure projected by the Treasury’s Office for Budget Responsibility (OBR).
Debt interest accounted for £8.8billion of the monthly bill, while the national debt remained just below £3trillion.
The troubling figures emerged as ministers prepared for the economic fallout from another surge in energy prices linked to turmoil in the Middle East.
There are growing fears that Chancellor John Healey may have to raise taxes again on October 28 to balance the books and fund Mr Burnham’s spending commitments.
Banks and capital gains have been identified as possible targets for tax increases, despite warnings that such measures could damage businesses and encourage wealthy people to leave Britain. The economy is already carrying an extra £75billion a year in taxes introduced by Rachel Reeves, pushing the overall burden towards a record high.
The Conservatives have urged ministers to reduce benefits rather than impose further costs on taxpayers, who are already facing soaring inflation and higher mortgage rates.
Economists warned that pressure was mounting on Andy Burnham, pictured leaving for New York last night, after government borrowing exceeded forecasts
Fears are growing that John Healey could be forced to raise taxes again on October 28 to balance the books and meet Mr Burnham’s spending commitments
Tom Davies, a senior statistician at the Office for National Statistics, said: ‘Borrowing during the financial year so far was lower than in the same period last year.
‘However, it was above the official forecast, largely because central government borrowing came in higher than expected.
‘Monthly borrowing rose by almost a fifth compared with last August, as spending increased faster than government income, partly reflecting the effects of inflation.’
Net spending on social benefits, including support for working-age people and pensioners, rose by 7.2 per cent in the financial year to August, reaching £145billion.
Martin Beck, chief economist at WPI Strategy, said spending was the most unexpected element of the figures.
‘Tax receipts have actually grown slightly faster than the OBR expected since the financial year began in April,’ he told BBC Radio 4’s Today programme.
‘The real overshoot has come from spending—particularly debt interest, as well as welfare and wider social spending.
‘The Government has three choices. It could raise taxes, but the tax burden is already heading towards a post-war high. Is there really room to increase it further?
‘It could borrow more, but borrowing is already elevated and the cost of borrowing remains extremely high.
‘That leaves the third option: reducing spending.’
‘But while that may be the most economically sensible approach the Government is under a lot of pressure from its backbenchers not to reduce spending on welfare, plus it’s got additional spending pressures around defence.’
Chris Beauchamp, Chief Market Analyst at IG, said: ‘The PM and chancellor will be feeling quite claustrophobic today as the walls close in around them.
‘Borrowing costs keep climbing, while borrowing itself is outpacing the teeny rise in tax receipts.
‘Everyone can diagnose the problem, but it’s far from clear that a PM who swept to power promising good things for all is capable of holding a fractious Labour party together to carry out the tough work needed.’
Shadow Chancellor Andrew Griffith said: ‘Labour have lost control of the public finances.
‘They are borrowing so much they’ve overshot the OBR forecast by an extra £8billion of debt.
‘It takes a rare fiscal incontinence to both have the highest tax take in history and see borrowing still shoot up.’
Reform’s Treasury spokesman Robert Jenrick said: ‘These borrowing figures are a national embarrassment.
‘It has never been more urgent to make savings, such as the £80billion Reform has identified to welfare, foreign aid, Net Zero, and Whitehall.
‘Britain needs proper spending control not more of the same failed approach.’
Chief Secretary to the Treasury Emma Reynolds said: ‘Britain has huge potential to deliver good growth in every postcode, creating jobs, raising living standards and investing in the services people rely on. But we can only deliver that growth with fiscal discipline.
‘At a time when debt interest costs billions of pounds that could otherwise be spent on improving lives, we must always know where the money is coming from to pay for public services.
‘That is why we are committed to meeting our fiscal rules with a buffer against uncertainty, taking the tough decisions needed to keep the public finances on a sustainable path.’
John O’Connell, chief executive of the TaxPayers’ Alliance, said: ‘These borrowing figures are a stark warning that Britain is living far beyond its means.
‘Welfare spending alone is forecast to hit almost £353billion this year, yet ministers still refuse to confront a benefits bill that places an ever-growing burden on taxpayers.
‘The chancellor should focus on tackling the ballooning welfare bill not reaching for another tax raid.’
