Rachel Reeves Gains £3bn Budget Boost After VAT Error Revealed

Published: 08 October 2025. The English Chronicle Online.

Chancellor Rachel Reeves has received an unexpected reprieve ahead of her November budget following the discovery of a £3 billion overstatement in government borrowing, the Office for National Statistics (ONS) announced on Wednesday. The revision, stemming from errors in VAT receipts data, provides the chancellor with a modest boost in fiscal flexibility as she prepares to outline tax and spending measures.

According to the ONS, cumulative borrowing for the fiscal year ending March 2025 was previously overstated due to misreported VAT figures supplied by HM Revenue and Customs (HMRC). The discrepancy affected monthly borrowing estimates from January 2025, ranging between £200 million and £500 million per month. Overall, the corrected data means borrowing for the fiscal year is £1 billion lower than previously reported, while borrowing between April and August 2025 is £2 billion lower.

Despite the revision, public borrowing continues to run ahead of forecasts issued by the Office for Budget Responsibility (OBR), although the gap is slightly narrower than earlier indicated. For instance, August’s borrowing figure has been adjusted from £18 billion to £17.7 billion, which now sits £5.2 billion above OBR projections instead of the £5.5 billion previously stated. The ONS has said that full details of the corrected public finances will be incorporated into the next release of official statistics on 21 October.

HMRC confirmed the error in a statement, acknowledging a miscalculation in VAT cash receipts for the period from April to August 2025. “VAT cash receipts from April 2025 to August 2025 have been increased by £2.4 billion,” the agency said, noting that the adjustment impacts provisional year-to-date revenue figures.

While the correction provides some relief to Reeves, it does not eliminate the wider fiscal challenges she faces. Analysts anticipate that the chancellor will still need to implement tax rises or spending adjustments to address an estimated budget gap ranging from £20 billion to £40 billion. The OBR is expected to announce a productivity downgrade, and policymakers are navigating a series of reversals, including scrapped plans for welfare cuts, which will further shape the fiscal outlook.

The latest VAT revision underscores persistent concerns over the quality and reliability of UK economic statistics. The ONS has faced scrutiny in recent years for a series of revisions, particularly since the Covid-19 pandemic, which has heightened the challenges for government officials seeking accurate data to inform economic policy. The errors highlight the ongoing difficulty in tracking complex financial flows and the pressures on policymakers to make informed decisions amidst evolving fiscal data.

While the correction is a welcome development for the chancellor, it also serves as a reminder of the systemic issues in economic data reporting, which have repeatedly complicated the government’s ability to present a clear and accurate picture of the nation’s finances. Reeves and her team will now need to factor the revised borrowing figures into the November budget, balancing fiscal responsibility with political and economic realities as they craft measures to ensure public finances remain sustainable.