The cost of servicing the UK’s national debt hit a record for September, and the bill is landing squarely on the public finances that ordinary citizens rely on. Government borrowing came in at £24.5bn last month, well above what the independent forecasters expected. The figures arrive just days before John Healey delivers his budget on Wednesday.
The Office for National Statistics said the government paid £10.9bn in debt interest during the month. That is the highest September figure since records began and only the eighth time a monthly total has passed £10bn. A large part of the increase traces back to inflation. Some government bonds are linked directly to the retail prices index, meaning payments rise with it, and RPI has climbed in recent months as the Iran war has pushed up energy costs. According to the ONS, that added £4bn to debt interest costs in September alone.
For households already feeling the squeeze from those same rising energy costs, the numbers matter in a very direct way. Healey is under pressure to provide relief, but the state of the public finances constrains how much support can be offered. Greg Thwaites, interim chief economist at the Resolution Foundation, said the figures pointed to a cautious approach. “The support must be temporary and targeted given the state of the public finances. Borrowing is already off track this year, debt has hit £3tn, and markets are closely scrutinising the government’s ability to keep on top of the public finances,” he said.
Total government debt is estimated to have reached £3tn for the first time, although as a share of the economy it has actually fallen, to 94% from 95% a year ago. The monthly deficit of £24.5bn was up from £17bn in August and £1.9bn higher than the Office for Budget Responsibility had forecast. So far this financial year, public sector net borrowing stands at £97.8bn, £4.4bn lower than last year but still £6bn above what the OBR expected.
Meanwhile, there were some brighter signals on the revenue side. Receipts from income-related taxes rose more than 7% on the same month last year, and corporation tax by 9%, helped by stronger than expected economic growth. Higher inflation tends to lift tax revenues, but it also squeezes what government departments can achieve within fixed budgets, and the stronger receipts were not enough to offset the mounting interest bill.
Healey has stressed his determination to stay within the fiscal rules set by his predecessor as chancellor, Rachel Reeves. Even so, he is widely expected to accept a slimmer financial buffer, or headroom, against those rules than the £24bn Reeves had built up at the time of her spring forecast. Martin Beck, chief economist at the consultancy WPI Strategy, described the data as “an unwelcome reminder of the pressures facing the chancellor ahead of next week’s budget”.
The political argument over who bears responsibility is already sharpening. The Conservative shadow chancellor, Andrew Griffith, said the figures showed Labour should do more to tackle the deficit. “Government borrowing of more than £3tn, the highest in history, and rising inflation show Labour has lost control of the economy,” he said.
What the numbers underline, ahead of Wednesday’s budget, is the continuing impact of the Iran war on the country’s public finances, and the narrow room the government has to respond to the pressures citizens are facing.