Government borrowing rises above forecasts to £24.5bn ahead of Budget

Government borrowing is the amount by which public spending exceeds income from taxes and other receipts during a period. So, £24.5 billion borrowed in one month means the government had a £24.5 billion shortfall in September. It is not a single loan necessarily, but the total financing needed to cover that gap.

The shortfall can arise from spending on services, benefits and debt interest being greater than incoming revenue. September’s total government spending was £111.3 billion, up 5.6% from a year earlier. Debt interest alone cost £10.9 billion, while net social-benefit spending reached £30.6 billion.

Borrowing adds to public debt unless it is later offset by surpluses. The latest figure was £1.8 billion higher than in September last year and £1.9 billion above the OBR forecast. It therefore leaves less financial room before the Chancellor’s Budget.

September’s £24.5 billion borrowing was higher on every comparison given in the article. It exceeded borrowing in the same month last year by £1.8 billion. That shows the monthly deficit became larger year on year, rather than merely staying unusually high.

Economists had widely expected borrowing of £24.1 billion. The actual figure was therefore £400 million above that prediction. It was also £1.9 billion above the Office for Budget Responsibility’s forecast, making the gap against the official benchmark considerably larger.

These differences matter because forecasts guide Budget planning and expectations about the public finances. The ONS said borrowing during the first six months of the financial year remained below the same period last year, but it was still above the official forecast. The September result adds pressure ahead of the Budget.

Government spending rose because some of its largest costs increased. Total spending reached £111.3 billion in September, 5.6% higher than a year earlier. When spending grows faster than tax receipts and other income, the government must borrow more to close the gap.

Debt interest was especially important. Central government paid £10.9 billion in September, £1.6 billion more than a year earlier, making it the highest September figure on record. The article links this rise to higher global borrowing costs, largely associated with the conflict in the Middle East. Net spending on social benefits also increased by £1.6 billion, reaching £30.6 billion.

Together, these pressures reduced the government’s fiscal headroom. The result was £24.5 billion of borrowing, £1.8 billion more than in September last year. Rising inflation and higher debt costs create a difficult Budget choice: support families while controlling borrowing.

Interest rates affect borrowing because the government must pay interest on its debt. When borrowing costs rise, existing debt can become more expensive to refinance, and new borrowing carries higher interest payments. Those payments use public money without directly funding a new service or investment.

The September figures show the mechanism clearly. Central government debt-interest costs reached £10.9 billion, up £1.6 billion from a year earlier. The Item Club also said higher gilt yields had dented the Chancellor’s fiscal headroom. Gilt yields are the market returns demanded on government borrowing, so higher yields raise financing costs.

That pressure makes fiscal plans harder to keep within their rules. The Item Club estimated only £10 billion to £15 billion of margin for error against the primary fiscal rule. With little room to manoeuvre, the article says any Budget giveaways are likely to be modest and temporary.

The two measures use different denominators. Debt in cash terms counts the pounds owed. Debt as a share of GDP compares that debt with the annual size of the economy. If the economy grows faster than debt, the percentage can fall even while the debt total increases.

The article reports that public sector net debt rose by £91.7 billion from a year earlier and passed £3 trillion for the first time. Yet debt as a proportion of GDP decreased by 0.7 percentage points, reaching 94%. The falling ratio therefore reflects the economy’s size relative to the debt, not a reduction in the amount owed.

The ratio helps show the burden debt represents compared with national economic activity. ONS chief economist Grant Fitzner said debt was still rising in cash terms but had fallen as a proportion of GDP over the year. He said the ratio remained at levels last seen in the early 1960s.

The Office for Budget Responsibility, or OBR, provides official forecasts for the public finances. Fiscal rules are government targets for keeping borrowing or debt within specified limits. They give markets and policymakers a way to judge whether tax and spending plans remain financially credible.

The article says September borrowing was £1.9 billion above the OBR forecast. It also reports that higher gilt yields left an estimated £10 billion to £15 billion of margin for error against the Chancellor’s primary fiscal rule. A margin for error is the space between expected results and the rule’s limit.

That space determines how much flexibility remains in the Budget. If forecasts worsen or interest costs rise, the margin can disappear. The Chancellor may then need higher taxes, lower spending or smaller measures to stay within the rule. The article expects any giveaways to be modest and temporary.

GDP, or gross domestic product, measures the value of goods and services produced by an economy over a period. It is a broad indicator of the economy’s size. Government debt is often compared with GDP because the ratio relates public obligations to the activity and income base of the country.

For example, the article reports that public sector net debt rose by £91.7 billion and exceeded £3 trillion. However, debt as a proportion of GDP fell by 0.7 percentage points to 94%. This means the debt total increased, but the economy’s measured size grew faster relative to it over the year.

The ratio does not eliminate the cost of debt, and it is not the same as the cash amount owed. But it provides useful context for judging the burden. ONS chief economist Grant Fitzner said the ratio remained at levels last seen in the early 1960s, despite its annual fall.