VAT Revision Offers Fiscal Breathing Room Ahead of Autumn Budget

Revised Borrowing Figures Give Treasury £3bn Extra Fiscal Space Ahead of Autumn Budget

A correction to government borrowing figures has provided the Treasury with up to £3 billion in additional fiscal space ahead of the upcoming Autumn Budget.

ONS Revises Borrowing Data

The Office for National Statistics (ONS) announced that borrowing from April to August 2025 was previously overstated due to an error in VAT receipts data reported by HM Revenue & Customs (HMRC).
The revised figures reduce public sector net borrowing during this period from £83.8 billion to £81.8 billion.

The error related specifically to cash VAT receipts and affected monthly borrowing estimates dating back to January 2025. The ONS clarified that the revision does not affect other headline indicators such as public sector debt or central government cash requirements.

Political Implications for Labour and the Autumn Budget

Although overall borrowing remains high by historical standards, the downward revision comes at a politically significant moment for the new Labour government.
With the Autumn Budget due in November, Chancellor Rachel Reeves now has slightly more flexibility to meet fiscal targets while supporting key priorities such as small business relief and public service investment.

In a brief statement following the ONS announcement, Reeves reaffirmed her commitment to fiscal responsibility. She described the adjustment as “technical” but welcomed the improved clarity.

Reaction from Small Businesses

Small business groups have responded with cautious optimism. Many firms continue to face challenges such as rising costs, policy uncertainty, and labour market pressures.
However, the prospect of fewer immediate tax increases or spending reductions has been received positively.

A spokesperson for the Federation of Small Businesses (FSB) said the revision offered a chance to maintain critical reliefs, including the increased Employment Allowance and frozen business rates for key sectors.
They urged the government to use the additional fiscal space to support stability and long-term growth for smaller firms.

Labour Market Trends and Business Confidence

Ahead of the budget, economic data suggests that some employers have already slowed hiring and wage increases.
Analysts attribute this trend partly to concerns over upcoming tax and regulatory decisions.
The Recruitment and Employment Confederation (REC) recently reported that business confidence in the labour market fell in September.

Balancing Fiscal Discipline and Growth

Labour has framed its approach to public finances as one of discipline paired with targeted investment.
The borrowing correction supports that narrative, giving the Chancellor an opportunity to meet fiscal rules while preserving funding for pro-growth initiatives.

At the same time, economists have called for greater scrutiny of how data is shared between HMRC and ONS, arguing that transparent and consistent reporting is vital for sound policymaking—especially during a period of economic uncertainty.

Looking Ahead

The Autumn Budget is expected to outline the government’s strategy on tax policy and public spending for the year ahead.
With the revised figures now in hand, ministers face growing pressure to show that they can turn a short-term statistical adjustment into lasting economic stability.justment into long-term economic confidence.