UK borrowing reaches five-year high for September at £20.2bn | Government borrowing

Government borrowing hit a five-year high in September after rising debt interest costs and higher welfare payments pushed public finances further into the red.

Figures from the Office for National Statistics (ONS) showed that public sector net borrowing (the difference between public spending and income) reached £20.2 billion last month, representing the highest September borrowing since 2020, up £1.6 billion on the same month last year.

The ONS said the increase in tax revenue this year had failed to offset the increase in debt interest costs and welfare costs, which have risen mostly in response to rising inflation.

City economists polled by Reuters had expected borrowing in September to be £20.8bn.

Total borrowing so far this financial year is £99.8 billion, £7.2 billion more than the Office for Budget Responsibility forecast in March and also the highest amount for the April to September period, excluding the equivalent period during the pandemic in 2020.

The latest figures deal another blow to Chancellor Rachel Reeves as she approaches her budget on November 26, when she is expected to announce significant tax increases.

A revision to cumulative borrowing since April reduced the total by £4.2bn, but the current budget deficit, which measures the shortfall in day-to-day spending, hit £71.8bn in the first half of 2025-26, compared with the OBR’s forecast of £58.8bn.

The increase in employers’ national insurance contributions announced last year and introduced in April brought in an extra £3.2bn compared to the same month last year, but government spending rose by more than £10bn, including a £3.8bn increase in debt interest payments.

Martin Beck, chief economist at WPI Strategy, said lower-than-expected borrowing still left the Chancellor in a difficult position ahead of the budget.

“As it stands now, total borrowing in 2025-26 could exceed the OBR’s full-year forecast by around £10bn, pushing the deficit closer to 5% of GDP,” he said.

“This is uncomfortably large for an economy that is operating at near full employment and is well past the shocks of the pandemic and energy crisis.”

Nabil Taleb, economist at PwC UK, said: “The Chancellor faces an increasingly difficult balancing act ahead of the autumn budget, with his fiscal capacity nearly exhausted by weak growth prospects, high borrowing costs and rising spending pressures.”

While consumer spending remained stable this year, the savings rate increased. Economists suggested households were nervous about spending after concerns the budget would include big tax increases to balance the books.

The UK’s borrowing costs in international money markets have fallen in recent weeks, reducing the cost of financing UK government debt.

However, the interest bill remains at historically high levels and annual borrowing is expected to be more than £100bn this year (almost 10% of the annual budget), restricting how much Whitehall departments can spend.

Reeves is expected to face a deficit of between £20 billion and £40 billion when he announces his autumn budget.

The Chancellor has hinted he will revive plans to cut the benefits bill as he grapples with a costly cut in the OBR’s productivity forecast, as well as big tax rises.

The economy grew by 0.1% in August, but a decline in growth in July meant this figure was only 0.3% in the three months to the end of August.

Treasury chief secretary James Murray said ministers were “cutting waste, improving efficiency and future-proofing our public services” to reduce debt interest payments.

“This government will never play fast and loose with public finances. We know that when you lose control of the public budget, working people pay the price. That’s why we plan to reduce borrowing and, according to IMF data, we are preparing to achieve the largest reduction in the primary deficit in both the G7 and G20 over the next five years, according to IMF data,” he said.

Shadow chancellor Mel Stride said Reeves had lost control of the public finances and “the next generation is bearing the burden of Labour’s debts”.

He added: “If Rachel Reeves had a plan or a backbone, she would stand up to the backbenchers, get her spending under control and cut the deficit. Instead, she plans to raise taxes once again to pay for her failures.”