UK government borrowing reaches second highest level amid fiscal pressures

Government borrowing in the United Kingdom surged to £132.3 billion between April and November, marking the second-highest level for this period, according to the latest figures from the Office for National Statistics. This figure was surpassed only in 2020 during the height of the pandemic, which triggered exceptional government spending to support the economy.

Despite a £25 billion rise in tax receipts—driven primarily by a £21 billion increase in national insurance contributions and a £14 billion rise in income tax receipts—the eight-month borrowing total increased by £10 billion compared to the same period last year. The higher revenues were offset by an even larger growth in public spending, which rose by £55 billion to £736 billion, including a £15 billion increase in benefit payments.

Borrowing in November alone amounted to £11.7 billion. This represented a £1.9 billion decrease from the same month last year and was the lowest amount recorded for November since 2021. The reduction was attributed to increased revenues from taxes and national insurance; however, total borrowing for the financial year to date remains higher than last year.

At the same time, the yield on ten-year government bonds rose to 4.5 percent, while the pound softened marginally against the dollar, trading at $1.33. Current official predictions from the Office for Budget Responsibility estimate that borrowing will reach £138 billion for the 2025 financial year.

Rachel Reeves, the Chancellor, has announced significant fiscal measures in two recent budgets. Her October budget implemented a £25 billion payroll levy on businesses, effective from April, and her subsequent budget in November extended the freeze on income tax thresholds, expected to bring in almost £10 billion in additional revenue. The OBR indicates that increased taxation has provided Reeves with £22 billion of headroom against her fiscal rules, though many measures will not come into effect for several years.

Despite these actions, economic analysts have expressed concern regarding the slow progress in reducing the deficit. The current deficit for the past eight months stands at £93 billion, up by £7 billion on an annual basis. Public sector net debt as a share of GDP has increased by 2.7 percentage points over the last year to reach 85 percent. Interest on government debt cost £3.4 billion in the latest month, slightly lower than a year earlier, but the OBR projects debt interest spending will exceed £100 billion annually over the coming five years.

James Murray, Chief Secretary to the Treasury, emphasised that one pound in every ten spent by government is consumed by interest payments, underscoring the urgency of reducing borrowing to prioritise public services. Reeves has committed to returning the deficit to surplus within five years to achieve her main fiscal objective; nonetheless, the overall health of the public finances remains fragile.