Rachel Reeves has been warned her tax rises are creating an ‘economic doom loop’ after ‘out of control’ public spending sent borrowing to the highest level since the outbreak of Covid-19.
In a bleak report ahead of the Budget in November, the Office for National Statistics revealed the Government borrowed £18billion last month alone as it spent more on the state than it raised in tax.
That was £5.5billion higher than forecast by the Office for Budget Responsibility (OBR) and took borrowing for the first five months of the fiscal year to £83.8billion.
The shortfall so far this year is the biggest since the onset of the pandemic in 2020 which forced the Tory government into huge spending to prop up the economy.
Senior Tory Robert Jenrick warned: ‘I’m absolutely terrified that unless Rachel Reeves changes course very quickly, we’ll see a financial crisis.’
He urged: ‘We’ve got to cut public spending now, above all else in welfare. We cannot allow the benefits bill in this country to continue to soar in the way it has in recent years, and that is having absolutely devastating consequences for our public finances.’
Government borrowing costs rose on global bond markets and the pound fell as international investors baulked at the parlous state of the nation’s finances.
Paul Dales, an economist at Capital Economics, estimated the Chancellor will need to raise an extra £28billion to plug the black hole in her Budget plans.
Rachel Reeves (above) has been warned her tax rises are creating an ‘economic doom loop’
Robert Jenrick (above) urged Reeves to reconsider before Britain plunges into ‘financial crisis’
Others have estimated as much as £50billion will be required to make her numbers add up.
But Ewen Stewart, founder of consultancy Walbrook Economics, said another round of tax rises would ‘impede growth even further’.
‘The borrowing numbers provide serious cause for alarm ahead of the Budget,’ he said.
‘The figures are much worse than the OBR forecasts and reinforce both our assertion that public spending is out of control and our prediction that the Government’s current policies will not deliver sustainable growth.’
Calling it ‘a massive headache’ for the Chancellor, he added: ‘She’s in an economic doom loop and has increasingly little time to come up with an escape plan.’ Interest on the £2.7trillion national debt pile hit £8.4billion last month.
