UK government borrowing rises in September despite lower annual total

The United Kingdom government borrowed 24.5 billion pounds in September, a figure that represents an increase of 1.8 billion pounds compared to the same month in the previous year. This monthly data, released by the Office for National Statistics, highlights the ongoing reliance on debt to fund public expenditure, as the state generally spends more than it collects in tax revenue. While the government can theoretically cover all spending through income from income tax, National Insurance, value added tax, and corporate profits, it frequently resorts to borrowing to bridge the gap between receipts and outgoings.

Although the September figure shows a year-on-year rise, the broader annual picture presents a more nuanced view. In the year to September 2026, the government borrowed a total of 97.8 billion pounds, which is 4.4 billion pounds less than the amount borrowed in the same period a year earlier. However, this total remains 6 billion pounds higher than the projections made by the Office for Budget Responsibility, the official forecaster. The fluctuation in monthly borrowing is a common occurrence, often influenced by the timing of tax payments. For instance, borrowing tends to be lower in January when a significant portion of the annual tax bill is paid by individuals and businesses.

The accumulation of this borrowing contributes to the national debt, with public sector net debt currently standing at just over 3 trillion pounds. This amount is nearly equivalent to the value of all goods and services produced in the UK in a single year, known as gross domestic product. The current level of debt is more than double the figures seen from the 1980s through to the 2008 financial crisis, a rise driven by the combination of the financial crash and the subsequent pandemic. Despite this increase, debt levels relative to the size of the economy remain lower than much of the last century and are below the equivalent figures for some other leading economies.

The cost of servicing this debt has become a significant fiscal concern. When interest rates were low during the 2010s, the burden was manageable, but costs rose noticeably after the Bank of England began raising rates in 2021. Following a peak of 5.25 per cent, the central bank started cutting rates in 2024, with the current rate standing at 3.75 per cent. However, further reductions in 2026 are now considered unlikely due to the economic impact of the Iran war, and there is growing speculation that rates may even increase. Consequently, interest payments on government debt reached 10.9 billion pounds in September 2026, an increase of 1.6 billion pounds from the previous year.

The pressure on the government’s finances is further complicated by its commitment to fiscal rules. When Labour came into power in 2024, it pledged to ensure that the total amount of money owed would fall as a proportion of the UK economy within five years. In the October 2024 Budget, then Chancellor Rachel Reeves altered the definition of debt used for this target to allow for greater investment. The government now tracks public sector net financial liabilities, a broader measure that includes funds from student loan repayments. Under this metric, total debt was 2.6 trillion pounds at the end of September 2026, equivalent to 82.7 per cent of GDP.

The Institute for Fiscal Studies has criticised the government for being overly focused on these borrowing rules, arguing that this fixation contributes to dysfunctional policymaking. The think tank advocates for a broader set of economic measures to guide fiscal decisions. Nevertheless, John Healey, who has succeeded Reeves as chancellor, has committed to adhering to the existing fiscal rules. The distinction between debt and deficit remains crucial in this context; the deficit is the gap between income and spending in a given period, while debt is the cumulative total of money owed over years. Debt rises when there is a deficit and falls when there is a surplus, a dynamic that continues to shape the UK’s economic policy landscape.