RACHEL Reeves has suffered a new setback after a surplus in government finances came in more than £5billion below forecasts.

It has left experts warning the Chancellor is on a “knife edge” of missing borrowing targets and having to raise taxes or cut spending to stay within her fiscal rules.

Figures showed a record £15.4billion surplus in January — driven by tax receipts from self-assessments.

But that was well below the £20.5billion sum that the Office for Budget Responsibility had planned for.

Public borrowing is now on course to come in significantly higher than the OBR’s prediction of £127.5billion.

The UK deficit for the first ten months of this financial year is £118.2billion — £12.8billion above the forecasts.

The government is also spending £6.5billion on debt interest payments — the second biggest sum in 27 years.

Economist Cara Pacitti, from Resolution Foundation, said Ms Reeves was being left “in the unenviable position of needing to raise taxes or cut spending to meet her fiscal rules at the OBR’s 26 March forecast”.

Shadow Chancellor Mel Stride said: “The latest borrowing figures expose the true cost of Labour’s reckless economic policies.”

Darren Jones, chief secretary to the Treasury, said: “We will never play fast and loose with the public finances, that’s why we’re going through every pound spent, line by line”

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