Fri, 14 Nov 2025

Fri, 14 Nov 2025 Government borrowing costs jump after Reeves decides against income tax rise

The 10-year gilt yield rises sharply in reaction to reports that an expected Budget income tax rise will not happen.
UK government borrowing costs have increased following reports that Chancellor Rachel Reeves will not raise income tax rates in the upcoming Budget. The interest rate on 10-year government bonds, also known as gilts, rose from 4.44% to 4.56% after trading opened. This indicates an increase in the cost for the government to borrow money over a period of 10 years. Market experts have expressed concern about how the government will meet its spending and borrowing commitments without raising income tax rates. However, yields eased later in the day following news that the financial gap facing the government was smaller than expected. Reeves had considered introducing an increase in income tax rates by 2p and a corresponding reduction in National Insurance contributions to help fill a £30bn shortfall in public finances. But recent forecasts from the Office for Budget Responsibility suggest that this gap may be smaller, around £20bn. The gilt market reacted strongly to reports of the Chancellor's decision not to raise income tax rates. However, the market eased slightly following news of the improved OBR forecast. Experts have warned that breaking promises on fiscal responsibility can lead to lower confidence and higher bond yields, making borrowing more expensive for the government. Some experts predict that the government may break its promise not to increase income tax, NI, or VAT for working people in the upcoming Budget. The Chancellor's decision has sparked debate among economists and financial experts, with some arguing that it will have serious consequences for the market and the economy. Others believe that the improved OBR forecast provides a more optimistic outlook for government finances.
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