Rachel Reeves has been handed a rare boost ahead of next month’s Budget after the Office for National Statistics (ONS) announced that government borrowing had been overstated by a cumulative £3bn after mistakes in recent public finances data.
Since January, public borrowing estimates have been out by around £200m-£500m a month, the ONS said, handing the chancellor some extra breathing space in her upcoming Budget.
The statistics body blamed the error, which emerged in its tax and spending figures published on 19 September, on a mistake in the VAT receipts data supplied by HMRC.
As a result, public borrowing for the year ending March 2025 was around £1bn lower than previously estimated. For this year so far, from April to August, it is £2bn lower.
James Benford, Director general of economic, social and environmental statistics at the ONS, said: “I would like to thank HMRC for bringing the data error to our attention; this timely and transparent communication was vital for identifying the issue and correcting the record quickly.
“We have published this correction at the earliest possible opportunity. The revised data will be fully incorporated into the next public sector finance release, due on 21 October 2025, along with further regular data updates, including the recent publication on local government by the Ministry of Housing, Communities and Local Government.
“The impact of the correction is to reduce government borrowing by around £1bn in FYE March 2025 and impacts monthly borrowing in the current financial year by between £200m and £500m per month.”
In a statement, HMRC said it had “identified an error in our VAT cash receipts outturn which impacts provisional 2025 to 2026 year-to-date receipts”.
“VAT cash receipts from April 2025 to August 2025 have been increased by £2.4bn”, the tax authorities added.
The latest revisions hand a rare boost to the beleaguered chancellor, who is gearing up for a difficult Budget next month where she will need to find savings of between £20bn-£40bn.
Speaking at the Labour conference in Liverpool last week, she warned of “harsh global headwinds” battering Britain’s economy, as she failed to dispel fears over major tax hikes.
It comes amid rampant speculation over tax rises at the next budget after the chancellor earlier on Monday admitted that “the world has changed” since she promised business chiefs she would not repeat the tax raid of her first budget.
Meanwhile, there is a growing expectation that she will choose to lift the controversial two-child benefit limit, as officials look at a number of options – including a “tapered” system.
The chancellor is under intense pressure to scrap the “cruel” policy, brought in by Tory chancellor George Osborne, which campaigners say would be the biggest single measure that could take children out of poverty.
But Ms Reeves told delegates at the party’s conference that she would keep control of the public finances and would “not take risks with the trust placed in us by the British people”.
She also acknowledged that her choices had been made “harder” by international events and the “long-term damage” done to the economy.
