Government borrowing in the UK surged to £16.6 billion in September, marking the third-highest figure for the month since records began in 1993.
This borrowing represents the gap between government spending and tax revenue and continues a trend of exceeding official forecasts.
The increase poses a challenge for the Treasury ahead of the upcoming Budget on 30 October, especially as the government has committed not to borrow for day-to-day spending.
However, it is expected to revise its debt rules to allow more borrowing for long-term investment projects, such as infrastructure.
Chief Treasury Secretary Darren Jones noted that the new Labour government inherited a fiscal “black hole,” which will require tough decisions to resolve.
Economists predict that the government may either raise taxes or reduce spending in the Budget as it tackles long-standing debts and high borrowing levels.
Some analysts also anticipate changes to the government’s fiscal rules, with Jones hinting last week that Labour could adjust these rules to permit borrowing for investment in large infrastructure projects.
Cara Pacitti, a senior economist at the Resolution Foundation, pointed out that the latest figures highlight the financial challenges the government faces.
According to the Office for National Statistics (ONS), the rise in spending is partly due to higher interest on debt and pay increases for public sector workers, including junior doctors, following a strike settlement in July.
Meanwhile, social benefits spending fell by £2 billion, largely due to cuts in winter fuel payments for wealthier pensioners.
Alex Kerr, a UK economist at Capital Economics, commented that while the disappointing September figures won’t directly impact the upcoming Budget, they show the limited ability the Chancellor has to increase spending without raising taxes.
However, Kerr added that if the fiscal rules are adjusted, there may be room for increased public investment.
The UK’s national debt currently stands at 98.5% of its economic output, slightly lower than the previous month but still at levels last seen in the 1960s. Borrowing in the first six months of the financial year totaled £79.6 billion, surpassing the Office for Budget Responsibility’s (OBR) forecast of £73.0 billion.
Although the September borrowing figure was higher than the OBR’s prediction of £15.1 billion, it was lower than the £17.5 billion expected by some economists.
