Government borrowing in the UK jumped higher than anticipated in June, putting renewed pressure on Chancellor Rachel Reeves as she prepares for a critical autumn budget amid rising speculation over potential tax increases.

According to the Office for National Statistics (ONS), public sector net borrowing hit £20.7 billion in June—£6.6 billion more than in the same month last year—marking the second-highest June figure since monthly records began in 1993. Economists had forecast borrowing to rise to £16.5 billion, making the latest data a significant overshoot.

The increase in borrowing was largely attributed to soaring interest payments on government debt and rising public service costs, which outpaced gains in tax revenue and national insurance contributions. Interest charges alone surged by £8.4 billion to £16.4 billion, driven by inflation-linked debt obligations tied to the Retail Prices Index.

Facing questions from the House of Lords economic affairs committee, Reeves reaffirmed her commitment to Labour’s fiscal rules, which mandate that day-to-day spending be fully funded by revenue within a five-year horizon. However, she did not rule out new tax measures, including a potential wealth tax, leaving her options open.

“It is the fiscal rules that underpin economic stability,” Reeves said. “One in every 10 pounds spent by government goes to servicing debt. I would much rather see that money going into hospitals, defence, or education.”

Reeves also acknowledged the financial cost of a recent government reversal on welfare reform, estimating the price tag at around £5 billion—a figure the Office for Budget Responsibility (OBR) is expected to confirm in the autumn.

Adding to the fiscal challenges, the UK economy contracted for two consecutive months in April and May, while inflation and unemployment have edged higher. Analysts warn that Reeves could face a £30 billion shortfall unless she introduces significant revenue-raising measures.

Economists at Pantheon Macroeconomics have predicted likely tax strategies including “sin taxes,” extended income tax threshold freezes, and the reintroduction of pension lifetime limits. “The fiscal pressure won’t end this autumn,” said chief economist Rob Wood. “Areas like defence will likely demand greater spending, prompting further tax adjustments.”

While Reeves is facing growing calls from Labour backbenchers, trade unions, and even former party leader Neil Kinnock to introduce a wealth tax, she continues to emphasize the need to support economic growth and maintain investor confidence. When pressed by former Conservative chancellor Norman Lamont to rule out such a tax, Reeves responded diplomatically: “Tax is a matter for the budget, and we’ll set out our policy then.”

Meanwhile, critics in the opposition have seized on the latest borrowing figures to attack Labour’s fiscal credibility. Shadow chancellor Mel Stride accused Reeves of “reckless borrowing” and warned that “working families will pay the price” for Labour’s financial policies and U-turns.

As of June, the UK’s public sector net debt stands at approximately 96.3% of GDP—one of the highest ratios since the 1960s. The OBR recently cautioned that the UK’s long-term financial position is unsustainable, driven by the rising costs of pensions, climate change mitigation, and public debt.

With the autumn budget looming, all eyes are on Reeves as she navigates the difficult path between fiscal discipline and meeting the demands of a slowing economy, political expectations, and an increasingly strained public purse.