May saw government borrowing soar to £17.7bn, the second-highest figure for the month in over three decades, underscoring the cash influx required to support Labour's expenditure surge.
This borrowing level exceeded the projections set by the Office for Budget Responsibility (OBR), as reported by .
The Office for National Statistics has released new figures indicating that the inability to narrow the day-to-day spending gap has resulted in national debt edging up by 0.5 percentage points from the previous year.
In May, the government's tax take from citizens increased by £10bn over the same month last year, highlighting the impact of heightened taxes on bolstering the Treasury's purse.
These latest statistics signal mounting pressure on the nation's fiscal health, with increased borrowing exacerbating public debt conditions.
Darren Jones, the Treasury's chief secretary, commented on the government's efforts to improve the financial well-being of Britons.
"Since taking office, we have taken the right decisions to protect working people, begin repairing the NHS, and fix the foundations to rebuild Britain," he stated.
"We stabilised the economy and the public finances; now we need to ensure that the British economy delivers for working people."
With the Spending Review cementing funding allocations for various government departments, Chancellor Rachel Reeves is expected to hike taxes later this year, as predicted by several City analysts.
Deutsche Bank has indicated that Reeves might need to secure an additional £10bn to finance her increased expenditure on the NHS and schools, while KPMG warns she may have to extract a further £20bn from taxpayers.
Alex Kerr of Capital Economics has intimated that tax increases are likely in the wake of recent policy shifts.
"The u-turns on benefit and welfare spending, downward revisions to the OBR's productivity forecasts and higher borrowing costs may mean, to maintain her current £9.9bn buffer, Reeves has to raise between £13bn and £23bn later this year."
Financial institutions and investors could find themselves in the crosshairs this autumn, with discussions around scrapping a £500 dividend allowance gaining traction.
Wealth management experts at St James' Place this week suggested that increasing the top rate of tax on dividends could be counterproductive and result in reduced revenue.
David Postings, chief executive of º£½ÇÊÓƵ Finance, separately cautioned that such measures could diminish the competitiveness of British banks against their German and French counterparts, potentially undermining London's status as a global financial centre.
Rachael Griffin, a tax specialist at Quilter, commented on the rise in tax receipts as evidence of the growing tax burden due to fiscal drag, also known as a "stealth tax".
"HMRC's latest figures for May 2025 mark another chapter in the government's stealth-tax strategy," stated Griffin.
"Despite no new headline tax rises [in May], receipts continue to climb thanks to frozen thresholds and slashed allowances.
"With income tax thresholds still frozen, many workers are paying a larger share of their earnings in tax simply due to modest pay rises, even when those increases fail to match inflation."
Borrowing risks from fiscal rule changes
Analysts have raised concerns that Treasury's changes to the rules affecting non-domiciled residents could thwart its growth ambitions by triggering a departure of affluent investors.
The Centre for Economic and Business Research recently cautioned that scrapping the non-dom status may result in an £8bn shortfall for the government.
Additional research by the Adam Smith Institute posited that the government's move to eliminate tax exemptions for wealthy foreign investors might lead to a loss of up to £111bn from the º£½ÇÊÓƵ economy over the next decade.
For the Chancellor's Autumn Budget, another consideration could be adjusting fiscal rules, a recommendation echoed by researchers at the Paris-based OECD.
However, such alterations could necessitate increased borrowing, fuelling already soaring debt interest payments, with the government's spending on borrowing costs currently double what is allocated for defence.
