UK government borrowing reached its highest level for a September in five years, driven by rising debt interest costs and higher welfare payments, according to official figures. Public sector net borrowing hit £20.2bn last month, up £1.6bn from September 2023 and the highest since 2020, the Office for National Statistics (ONS) reported.
The ONS said a rise in tax receipts failed to offset increases in debt interest costs and welfare spending, which have mostly risen in response to inflation. Total borrowing for the financial year so far stands at £99.8bn, £7.2bn more than the Office for Budget Responsibility (OBR) forecast in March and the highest April-to-September period excluding the pandemic year of 2020.
The figures present a challenge for Chancellor Rachel Reeves ahead of her budget on 26 November, where significant tax increases are expected. The current budget deficit, measuring the shortfall in day-to-day spending, reached £71.8bn in the first half of 2025-26, against the OBR's forecast of £58.8bn. A rise in employer national insurance contributions brought in an extra £3.2bn compared with last September, but government spending rose by more than £10bn, including a £3.8bn increase in debt interest payments.
Economists warned the chancellor faces a difficult balancing act. Martin Beck, chief economist at WPI Strategy, said 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. Nabil Taleb of PwC UK noted that fiscal headroom is all but exhausted by weaker growth prospects, higher borrowing costs and rising spending pressures.
The OBR predicted borrowing would be lower in the second half of the financial year, citing a sharp rise in capital gains tax expected around the end-January due date and lower debt interest payments. However, annual borrowing is poised to exceed £100bn this year, almost 10% of the annual budget, squeezing departmental spending. The chief secretary to the Treasury, James Murray, said ministers are cutting waste and improving efficiency to reduce debt interest payments.
