Rachel Reeves gains fiscal boost as ONS corrects three billion pound borrowing error

Rachel Reeves, the Chancellor, has received an unexpected boost to her forthcoming budget as the Office for National Statistics (ONS) revealed public borrowing figures had been overstated by a cumulative £3bn since January due to a VAT receipts error. This correction, which sees borrowing revised down by £200m-£500m each month, provides Reeves with additional leeway at a critical time of fiscal planning.

The revised data comes amid expectations that Reeves will announce tax increases in her November budget, a move prompted by downgraded growth forecasts from the Office for Budget Responsibility (OBR) and a series of recent policy reversals. Despite this windfall, the need to address a substantial spending gap—estimated at between £20bn and £40bn—remains a pressing concern for the Treasury following the scrapping of planned welfare cuts and the anticipated productivity downgrade.

The ONS attributed the error to mistaken VAT data supplied by tax authorities, affecting several recent tax and spending releases. For the fiscal year ending March 2025, the mistake means public borrowing was £1bn lighter than previously reported. The first five months of the current financial year now show borrowing at £81.8bn, a reduction from the £83.8bn initially published. More specifically, the budget deficit excluding investment—a metric Reeves is targeting for elimination—stood at £60bn, lower than the previous £62bn figure but still far above the OBR’s £46.6bn projection.

Despite this correction, government borrowing continues to run ahead of expectations, with the latest data emphasising the ongoing challenges facing public finances. The full implications of the correction will be integrated into the next round of official figures and the second iteration of the OBR forecasts, both due later in October. These adjustments coincide with mounting scrutiny over the reliability of UK economic data, an issue amplified since the pandemic’s onset. Errors in labour market and other key statistical releases have added complexity for policymakers and undermined confidence in official reports.

HM Revenue and Customs accepted responsibility for the VAT cash receipts miscalculation, confirming receipts from April to August 2025 were £2.4bn higher than reported. Ongoing concerns about data quality remain, but for Reeves, the extra fiscal headroom may help to soften the necessity or severity of any tax rises to be announced as she aims to steer the UK economy onto a more stable and transparent path.