Britain’s public finances delivered a rare slice of good news for the chancellor this week, with government borrowing sinking to a four-year low in March. But business leaders and economists are already bracing for the figures to sour, warning that the escalating conflict in the Middle East could swiftly unravel Rachel Reeves’s carefully constructed fiscal plans.
According to figures released on Thursday by the Office for National Statistics, the government borrowed £12.6bn last month, the lowest March total since 2022 and £1.4bn below the same month a year earlier. The drop was driven by a sharp fall in debt interest spending and a bumper £100bn haul in tax receipts.
For small and medium-sized businesses, which continue to shoulder the weight of frozen income tax thresholds, higher employer national insurance and stubborn inflation, the figures offer only cold comfort. While the Treasury has edged closer to meeting its borrowing targets, the improvement owes less to restraint on Whitehall and more to a quirk of the retail price index.
Despite the monthly improvement, March’s figure came in above the £10.4bn consensus forecast from City economists. Borrowing over the full financial year reached £132bn — £700m below the Office for Budget Responsibility’s projection, but still the sixth-highest annual total since records began in 1947. The figure was nonetheless nearly £20bn lower than the previous year.
The headline reduction was flattered by a dramatic fall in debt interest costs, which dropped to £3.2bn in March from £13bn in February and £4.5bn in the same month last year. A substantial portion of the UK’s debt stock remains linked to the retail price index, a measure economists have long dismissed as outdated. A sharp deceleration in RPI between December and January fed directly through to lower payments to index-linked gilt holders.
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