The Chancellor should scrap her fiscal rules if she is serious about growth

Government borrowing figures released this week have highlighted growing pressures on the UK’s public finances, as borrowing rose to £20.2 billion in April, £1 billion higher than the same period last year and the fourth highest April figure since records began in 1993.

The sharp rise in borrowing, the gap between public spending and tax revenues, has led experts to question whether Chancellor Rachel Reeves will be able to meet her self-imposed fiscal rules without resorting to further tax increases in the autumn.

Joe Nellis, Chief Economic Advisor at MHA, has voiced serious concerns about the government’s financial trajectory.

“Public sector spending has continued to significantly exceed income in April, leading to a spending deficit covered by borrowing of £20.2bn,” said Nellis. “This is an increase on the £16.4bn recorded in April and is a concerning figure for the Chancellor as it continues to put strain on her slim fiscal headroom.”

The cost of borrowing is also climbing. Rising bond yields, which reflect market expectations and risk,  are pushing up the interest payments the Government must make on its debt.

“Yields on UK bonds are relatively high and have risen even further following the largest jump in inflation since the height of the inflation crisis in October 2022,” Nellis explained. “The OBR has warned that the interest on debt could exceed £100bn a year until the end of this Parliament. This would be a considerable burden on public finances.”

While a new UK-EU agreement had sparked some optimism for economic revival, the outlook remains tepid.

Nellis believes the current fiscal strategy may need a radical rethink if the UK is to escape this cycle.

“Of the Government’s two economic goals — cutting the deficit and creating a growing economy — they must prioritise growth,” he said. “To do this, the Chancellor should scrap her fiscal rules to enable public and corporate investment and focus on recalibrating the economy onto a positive path to growth.”

As the UK moves further into the financial year, all eyes will be on the Chancellor’s autumn statement, where decisions made could set the tone for the country’s economic direction well beyond this Parliament.