SNP's blunt message on public service cuts and tax rises as UK borrowing surges to £3.1bn
Labour has been accused of leaving Scotland’s public services at risk as Treasury officials confirmed the two-child benefit cap would not be scrapped in the October Budget as borrowing surged to a higher-than-forecast £3.1 billion.
Chancellor Rachel Reeves is facing further challenges ahead of her first Budget this autumn as the Office for National Statistics (ONS) revealed government borrowing jumped by far more than expected last month.
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Hide AdPublic sector net borrowing stood at £3.1bn for July – £1.8bn more than a year ago and the highest July borrowing since 2021. The total for July was £3bn more than predicted by Britain’s official forecaster, the Office for Budget Responsibility (OBR), and higher than the £1.1bn most economists were pencilling in.
It comes as Treasury chief secretary Darren Jones said the unexpected increase in government borrowing meant abolishing the two-child benefit cap - a measure pushed for by the SNP - was unaffordable.
The SNP has claimed public services could be at risk, referencing reports that Ms Reeves is planning to raise taxes, cut spending and get tough on benefits.


Any cuts to UK spending would substantially reduce the consequentials to be sent north of the Border, further compromising the financial position of the Scottish Government.
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Hide AdFinance Secretary Shona Robison last month wrote to Cabinet ministers saying money would only go to Government departments if it was essential to meeting legal requirements or to prevent an economic crash. Pay deals agreed to by the Scottish Government, including an extra £77.5 million offered to avert bin strikes, have made the financial predicament even tougher, ahead of a crunch December Budget.
SNP MSP Rona Mackay said: “Keir Starmer cannot claim to be serious about tackling child poverty until he scraps the two-child benefit cap, which is known to be one of the biggest drivers of child poverty.”
Ms Mackay added: “After only a matter of weeks in government, this is set to be just the latest broken promise from the party which promised ‘change’ throughout the election campaign but have so far offered no change at all from yet more austerity and devastating cuts to public services.”
Fellow SNP MSP Collette Stevenson added: “It is clear that [Scottish Labour leader] Anas Sarwar was prepared to make promises he couldn’t keep in order to win votes during the election campaign and that he has little or no influence over his bosses in London. “Scotland has suffered from 14 years of Westminster austerity and cuts to public services under the Tories. It is becoming clearer by the day that Labour has no intention of delivering any of the ‘change’ which they repeatedly promised throughout the election campaign.
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Hide Ad“By keeping in place policies such as the cruel two-child benefit cap whilst ditching the winter fuel payment, Labour has already shown they will hit the most vulnerable in our society hardest in order to follow Tory fiscal policies.” The UK government has insisted it is committed to reducing child poverty, with education secretary Bridget Phillipson and work and pensions secretary Liz Kendall heading up a ministerial taskforce to develop a child poverty strategy – something that featured in Labour’s manifesto.
But charities, including those consulted by the taskforce, have repeatedly said abolishing the two-child limit was the simplest and most effective way of lifting children out of poverty.
Asked about the prospects of abolishing the two-child benefit cap at the Budget on October 30, Mr Jones told the BBC’s World At One programme: “You have to just look at the economic statistics that we’re talking about today to understand why we just can’t afford to do that right now.” He added: “Today’s figures are yet more proof of the dire inheritance left to us by the previous government.
“A £22bn black hole in the public finances this year, a decade of economic stagnation and public debt at its highest level since the 1960s, with taxpayers’ money being wasted on debt interest payments rather than on our public services.
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Hide Ad“We are taking the tough decisions that are needed to fix the foundations of our economy, modernise our public services and rebuild Britain so we can put more money back into people’s pockets across the country.”
Saying the public expected the government to get public spending “back under control”, Mr Jones added: “That means that we have to make very difficult decisions that in our hearts we wouldn’t want to have to make, and that includes on the two-child cap as well.”
Resistance to abolishing the limit brought the government’s first rebellion, with seven MPs voting in favour of an opposition amendment to the King’s Speech calling for an end to the policy.
Those MPs – including former shadow chancellor John McDonnell and former leadership candidate Rebecca Long-Bailey – had the Labour whip suspended after their rebellion.
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Hide AdAsked about potential tax rises at the coming Budget, Mr Jones reiterated his party’s manifesto pledge not to increase income tax, employee national insurance contributions, or VAT.
But Philip Rycroft, who was permanent secretary in the Department for Exiting the EU between 2017 and 2019, said Labour had "retreated" over tax and allowed the media to drive the agenda.
Speaking at the Festival of Politics in the Scottish Parliament on Wednesday, he expressed irritation that Labour "put itself on the hook that was put up there, effectively, by Mrs [Margaret] Thatcher, about this discourse about the size of the state and about tax levels".
He said: "So saying at the off that they weren't going to increase income tax, VAT or national insurance - come on, everybody knows that to address the problems in public services in this country, we are going to have to increase taxes. Everybody knows that.
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Hide Ad"And the way that governments have tended to do it, again, it's a sort of subterfuge, you do it by not shifting the thresholds, you hope people don't notice, by sort of slights of hand, which in turn, I think, cheapens the public discourse. There's a sort of lack of honesty there, being upfront with people."
The ONS data also revealed public sector net debt excluding state-owned banks was estimated at 99.4 per cent of gross domestic product (GDP) at the end of July. This was 3.8 percentage points more than a year ago and remains at levels last seen in the early 1960s.
Government borrowing in July is usually low thanks to a surge in self-assessment tax receipts, with a record £12.9bn being received in July. But July’s data showed soaring public spending as social benefits leaped higher due to recent inflation-linked increases.
The figures do not yet take into account the most recent round of public sector pay rises announced by the Labour government, although the OBR said the overshoot in borrowing compared with its forecast for the year to date “appears related to strong growth in public sector pay”.
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Hide AdMs Reeves last month ditched winter fuel allowances for ten million pensioners as part of immediate action to address a shortfall in the public finances by £5.5bn, with the rest of the gap to be tackled at a Budget on October 30.
The Scottish Government last week confirmed it would follow the UK government in no longer providing winter fuel payments to all pensioners.
Experts are warning the latest set of borrowing figures raise the spectre of further tax rises and more borrowing to cover spending on public services.
Recent better-than-expected growth figures, which saw GDP rise by 0.6 per cent between April and June, are not expected to soften the blow.
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Hide AdIsabel Stockton, senior research economist at the Institute for Fiscal Studies, said: “The early signs are that better-than-expected growth figures won’t be enough save Rachel Reeves from tough choices in her first Budget on October 30.
“The combination of in-year spending pressures identified at last month’s spending audit and the ongoing, and well known, pressures facing many public services suggest that the accompanying spending review for 2025/26 could be a particularly difficult exercise.”
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