Government borrowing soars to highest levels since pandemic

Government borrowing in September rose to £20.2 billion – the second-highest for the month on record – as rising debt costs and wage pressures outweighed higher tax receipts. With the Budget weeks away, AJ Bell’s Danni Hewson comments that the figures highlight the scale of the challenge facing Chancellor Rachel Reeves in her efforts to stabilise the public finances.

Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK public sector finances:

“This set of government borrowing figures lays bare the tough job Rachel Reeves faces to try and balance the country’s books. 

“The chancellor has hiked taxes on employers, announced infrastructure investments and planning reforms, and today promises to cut red tape for businesses. But all those tax-raising, growth-inducing measures haven’t been able to offset the weight piling up on the other end of the seesaw. 

“Inflation has insidiously woven its tentacles deep into the Treasury’s coffers, ratcheting up interest on the huge debt pile that’s mushroomed since 2020, inflating the cost of benefits and creating an economic backdrop where pay rises were inevitable. The chancellor will likely also have to contend with an expected downgrade to productivity forecasts from the OBR – a measure that had previously been pinpointed as a palatable solution to a decades-long problem.

“Questions remain over how to stimulate growth, make consumers feel confident enough to spend their cash and convince businesses that now is the time to take their foot off the brakes and invest. There are green shoots, with the economy resilient if uninspiring despite external factors like tariffs and geopolitical tensions, but many of the changes already implemented or under consideration are admirably long term.

“Today’s world demands instant gratification and finding a magic money tree is a plot twist normally reserved for fairytales. In the real world this Budget is likely to be dry, difficult and divisive.”