UK borrowing reaches five-year high for September at £20.2bn
UK government borrowing was the highest for five years in September after rising debt interest costs and higher welfare payments pushed the public finances deeper into the red.Figures from the Office for National Statistics (ONS) showed public sector net borrowing – the difference between public spending and income – hit £20.2bn last month, up £1.6bn from the same month last year and the highest September borrowing since 2020.The ONS said a rise in tax receipts was unable to offset the jump in debt interest costs this year and a rise in welfare costs, which have mostly increased in response to rising inflation.
City economists polled by Reuters had expected borrowing to be £20.8bn in September.Total borrowing so far this financial year is £99.8bn, £7.2bn more than forecast by the Office for Budget Responsibility (OBR) in March, and also the highest amount for April to September period barring the equivalent period during the pandemic in 2020.
The latest figures deal another blow to the chancellor, Rachel Reeves, in the run-up to her budget on 26 November, when she is expected to announced significant tax increases.A revision to cumulative borrowing since April brought down the total by £4.2bn, but the current budget deficit, which measures the shortfall in day-to-day spending, reached £71.8bn in the first half of 2025–26, compared with the OBR’s forecast of £58.8bn.
A rise in employer national insurance contributions – announced last year and introduced in April – brought an extra £3,2bn compared with the same month last year, but government spending rose by more than £10bn, including a £3,8bn increase in debt interest payments,The OBR, which produces forecasts of the public finances twice a year, said that after several months of divergence, receipts and spending were both close to its forecast for the year-to-date,The forecaster predicted borrowing would be lower in the second half of this financial year (October-March), due to “a sharp rise in capital gains tax expected around the end-January due date, lower debt interest payments in the second half of the year, and lower growth in central government net social benefits which were unusually backloaded last year”.
Inheritance tax receipts continued to climb, reaching £4,4bn, which was £100m higher than the same period last year,Martin Beck, the chief economist at WPI Strategy, said lower borrowing than expected still left the chancellor in a tricky position before the budget,“As things stand, total borrowing in 2025–26 could overshoot the OBR’s full-year forecast by about £10bn, pushing the deficit to close to 5% of GDP,” he said,“That’s uncomfortably large for an economy operating near full employment and long past the shocks of the pandemic and energy crisis.
”Nabil Taleb, an economist at PwC UK, said: “The chancellor faces an increasingly difficult balancing act ahead of the autumn budget, with her fiscal headroom all but exhausted by a mix of weaker growth prospects, higher borrowing costs and rising spending pressures.”Consumer spending has flatlined this year while the savings rate has increased.Economists have speculated that households are nervous about spending after concerns that the budget will contain large tax rises to balance the books.Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionUK borrowing costs on international money markets have fallen in recent weeks, cutting the cost of financing UK government debt.However, the interest bill remains at historically high levels and annual borrowing is poised to be more than £100bn this year – almost 10% of the annual budget – putting a squeeze on how much Whitehall departments can spend.
Reeves is expected to be faced with a deficit of between £20bn and £40bn when she announces the autumn budget.As well as large tax rises, the chancellor has hinted that she will revive plans to reduce the welfare bill, as she wrestles with a costly downgrade to the OBR’s productivity forecast.The economy grew in August by 0.1% but a downgrade of growth in July meant that the figure was only 0.3% over the three months to the end of August.
The chief secretary to the Treasury, James Murray, said ministers were “cutting waste, improving efficiency and transforming our public services for the future” to reduce debt interest payments.“This government will never play fast and loose with the public finances.We know that when you lose control of the public purse it’s working people who pay the price.That’s why we plan to bring down borrowing, and according to IMF data, are set to deliver the largest primary deficit reduction in both the G7 and G20 over the next five years,” he said.The shadow chancellor, Mel Stride, said Reeves had lost control of the public finances “and the next generation are being saddled with Labour’s debts”.
He added: “If Rachel Reeves had a plan – or a backbone – she would stand up to her backbenchers, get spending under control and cut the deficit,Instead she is plotting to hike taxes yet again to pay for her failures,”The best public interest journalism relies on first-hand accounts from people in the know,If you have something to share on this subject you can contact the Business team confidentially using the following methods,Secure Messaging in the Guardian appThe Guardian app has a tool to send tips about stories.
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