Public sector borrowing in August has jumped to its highest level in five years, raising fears of huge tax hikes in the autumn to balance the books.
Borrowing – the difference between total public sector spending and income – was £18bn in August 2025, £3.5bn more than last year and the highest since 2020, when the economy had ground to a halt in the wake of coronavirus lockdowns.
Borrowing in the financial year to August 2025 was £83.8bn, £16.2bn more than in the same five-month period of 2024 and the second-highest April to August borrowing since monthly records began in 1993.
Overall, public sector net debt excluding public sector banks has been estimated at 96.4 per cent of GDP at the end of August 2025; 0.5 percentage points more than last year and remaining at levels last seen in the early 1960s.
Tax hikes on the cards
It comes as the government is widely expected to unveil major hikes in taxes in its Autumn Budget to fund ballooning spending commitments.
Lindsay James, investment strategist at Quilter:
“Once again the UK government’s borrowing for August highlights why it seems all but certain that tax rises are coming at the Budget in two months’ time. The Office for National Statistics has put August’s borrowing figure at £18bn, putting the budget deficit for the financial year to date at £62bn, £13.8bn higher than the same time last year. This was the highest level of borrowing in August for five years, when we were still dealing with the fallout of the first pandemic lockdown. These figures are staggering and are not showing an economy that is in rude health.”
The Treasury could be forced to raise as much as £50bn in fresh tax hikes to stay within its fiscal rules, according to the National Institute of Economic and Social Research (NIESR), laying bare the scale of the pain that could be wrought on businesses by Chancellor Rachel Reeves in the coming months.
The extra cash needed would be equivalent to a staggering five per cent hike on both the basic and higher rates of income tax, NIESR said, adding that a freeze on current tax thresholds would rake in an extra £8.2bn.
“The really disappointing thing from my point of view was that when Labour came in there didn’t seem to be a plan on the table,” said NIESR deputy director, professor Stephen Millard.
“A lot of problems the chancellor is facing now could have been headed off at the pass if they had come in with a clear plan.”
Millard said there were “really hard decisions the chancellor is going to have to make if she is going to raise that £50bn.
“That requires large increases in taxes – fiddling at the edges is not going to do.”