UK Borrowing in April Exceeds Expectations: Tax Hikes Possible in Autumn!

TBA
May 27
4 min read

Updated: Jun 1

Tax rise warning after higher-than-expected UK borrowing in April

The latest data shows that the UK’s inflation rate jumped to 3.5% in April, exceeding expectations and reaching the highest level in more than a year. The main drivers of this surge were steep increases in household bills such as water charges, energy costs, and council tax. In addition, a rise in employer National Insurance contributions and an increase in the national minimum wage also prompted businesses to raise prices.

Water and sewage treatment fees saw their fastest increase since privatization, rising by 26.1%. At the same time, the Vehicle Excise Duty also saw a significant jump. Together, these factors pushed the Consumer Prices Index (CPI) to its highest point since January of last year.

Because the inflation rate exceeded financial market expectations, the Bank of England is likely to resist calls to accelerate or deepen interest rate cuts. Monica George Michail, an economist at the National Institute of Economic and Social Research, stated that inflation may remain elevated in the coming months, which could force the central bank to delay rate cuts. The Bank of England is now only expected to cut rates once more this year.

The British Chambers of Commerce also noted, “Although the April inflation surge was anticipated, the increase to 3.5% is still concerning. Research shows that 55% of businesses expect to raise prices in the coming months.”

Meanwhile, UK government borrowing in April exceeded expectations. According to the Office for National Statistics (ONS), public sector net borrowing rose to £20.2 billion in April, an increase of £1 billion compared to the same period last year. Economists in the City of London had previously forecast borrowing to be £17.9 billion.

However, rising wages and inflation have increased the government’s operating costs, and the “triple lock” mechanism on state pensions has further driven up welfare spending. Central government spending rose by £4.2 billion year-on-year to £93.3 billion in April, highlighting the challenges Chancellor Rachel Reeves faces in balancing the restoration of public services with economic growth.

The higher-than-expected government borrowing data increases the likelihood that Chancellor Reeves will raise taxes this autumn.

Ruth Gregory, Deputy Chief UK Economist at Capital Economics, said the “poor start” to the fiscal year makes further tax hikes “look increasingly inevitable.”

Matt Swannell, Chief Economic Adviser at EY Item Club, also stated: “The Prime Minister’s partial reversal of cuts to the winter fuel allowance and the potential for increased defense spending will further heighten the pressure to raise taxes.”

Trump threatens 50% tariffs on EU and 25% on iPhones

U.S. President Donald Trump has announced that he is proposing a 50% tariff on all goods imported from the European Union. In a social media post last week, he wrote: "Our negotiations with the EU are going nowhere!" and stated that the new tariffs would take effect on June 1.

This announcement marks an escalation in the trade war between Trump and the EU. He initially proposed a 20% tariff on most EU goods, later reduced it to 10%, and postponed implementation to July 8 to allow time for negotiations.

Trump also threatened to impose an import tax of "at least 25%" on iPhones not manufactured in the U.S. He said: "I’ve already told Apple CEO Tim Cook that I want all iPhones sold in the U.S. to be made here in America, not in India or anywhere else. If that’s not the case, Apple must pay at least a 25% tariff to the U.S."

Analysts note that it remains to be seen whether these threats will materialize. Following these remarks, the EU has yet to comment on the latest tariff threats. Meanwhile, Apple’s stock opened more than 2% lower.

Since returning to the White House, Trump has either imposed or threatened tariffs on goods from multiple countries, viewing it as a way to boost U.S. manufacturing, protect jobs, and fend off foreign competition. However, the prospect of higher tariffs on imports has unsettled many industries, as it would make selling products in the U.S.—the world’s largest economy—more costly and challenging.

HMRC issues 'minimum tax bill' of nearly £100,000 UK homes

UK households are facing tax bills of nearly £100,000 from HM Revenue & Customs (HMRC). A new analysis of Financial Conduct Authority (FCA) data shows that between October 2023 and March 2024, 292 individuals withdrew pension pots worth £250,000 or more—triggering substantial tax liabilities.

During this period, 292 people fully withdrew pensions of at least £250,000, each incurring a minimum tax bill of £98,700. Additionally, 1,593 people fully withdrew pensions valued between £100,000 and £249,000—an increase of 56 people compared to the previous year.

According to the Birmingham Mail, individuals withdrawing pensions within this range face starting tax charges of £27,400. Those withdrawing £174,500 in pensions, for example, would owe at least £64,700 in tax.

Mike Ambery, Retirement Savings Director at Standard Life, stated: “A large number of people are paying disproportionately high taxes just to access their pension pots.” He noted that withdrawing large sums as a lump sum almost always results in a significant tax bill, and recommended considering alternatives such as flexible drawdown or annuities instead.

Standard Life advises that it's important to first understand that most people can withdraw 25% of their pension tax-free, while the remaining 75% is subject to income tax. The current tax-free limit across all pension accounts is £268,275, unless the individual holds specific tax protection measures.

Most accountants also stress the importance of managing one’s personal tax allowances wisely. They recommend using Individual Savings Accounts (ISAs) or a combination of tax-free and taxable withdrawals to minimize tax liability. Ambery added: “The simplest way to avoid overpaying tax is to only withdraw the amount of pension you actually need. Taking smaller, regular withdrawals helps keep your tax burden under control.”