Question

Increased government borrowing, combined with increased taxes, might do the trick. How is it possible that in the face of rising expenditures, the budget surplus may increase in the above situation? How and from whom does the government borrow?

Answer 1

When spending on goods , services, or transfer payments by a government exceeds its tax revenue, the government has run a budget deficit. Governments borrow money to pay for budget deficits and that adds to their national debt whenever a government borrows money. Where a government spends less on goods , services and loans than it receives in tax revenue; budget surpluses may be used to pay the national debt.
If government spends more on goods , services and loans than tax revenue collects; budget deficits contribute to the national debt. In the United Kingdom, surpluses have been fairly uncommon in recent decades, with the government usually running deficits, spending more than taxes and borrowing to make up the difference. These deficits increased the outstanding nominal (i.e. not adjusted for inflation) value of the national debt (whereas it would have been reduced by surpluses). The government usually borrows from the 'market' rather than borrowing from the banks – mainly pension funds and insurance firms. These companies lend money to the government by purchasing bonds issued for this purpose by the Government. Because of the lack of risk involved, many businesses prefer investing money in government bonds: the UK government has never defaulted on its debt obligations and is unlikely to do so in the future, largely because it can raise money from the public through taxation. The government debt market also tends to be stable and liquid, and offers an interest rate that exceeds that available for other risk-free investments (i.e. physical cash).

in Most government borrowing processes do not create any new money. While most individuals and businesses accept bank deposits in payment, the UK government does not; they require new bond buyers to "settle" the transaction by transferring central bank reserves (see The Three Money Types) to a government-owned Bank of England account. that  means that new money is not created in the process of government borrowing. It is quite doubtful that the new program will require the government to reduce debt. To understand why, consider what would need to happen to pay down the debt. First, the government will have to start paying the annual interest on the national debt out of tax revenue each year, instead of only borrowing the money to fund it.