Highest September borrowing since 2020 and debt interest payments surge ahead of budget

Government borrowing hit its highest September level since 2020 last month, according to official figures showing a leap in debt interest payments to almost £10bn,

The Office for National Statistics (ONS) reported £20.2bn of borrowing last month despite a-near 9% rise in tax receipts compared to September 2024.

It left government borrowing in the financial year to date £7.2bn above forecasts by the Office for Budget Responsibility.

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The data showed provisional spending of £90.7bn, with £9.7bn of that being used to service the cost of government debt following increases in the retail prices index measure of inflation.

The ONS said that sum was up by almost £4bn.

There is just over one month to go until the chancellor's second budget.

The extended build-up has been dominated by talk of which taxes are to rise in order to restore headroom against the rules Rachel Reeves has set herself amid talk of a black hole of up to £30bn.

Ms Reeves had pledged, after her first major fiscal event raised taxes by £41bn, not to launch a repeat or borrow more but has since rowed back on that language somewhat on the grounds that the world has changed.

The respected Institute for Fiscal Studies (IFS) last week made a case for her to go further than she needed in terms of tax hikes on 26 November.

The thinktank argued she could eliminate constant speculation over the state of the public purse by raising more than the £22bn it forecast she would have to seek just to restore £10bn of breathing space - the so-called buffer.

The IFS said it could be best achieved through income tax increases, rather than wider tinkering that made the tax system even more complicated.

She was accused of bolstering inflation and unemployment in the wake of her first budget as companies passed on higher employment costs to customers.

Official figures due out on Wednesday are expected to show the main consumer prices index measure of inflation running at its steepest level since January 2024 at 4%.

The UK's jobless rate currently stands at 4.8%. That is up from 4.1% a year earlier.

The chancellor has blamed factors including Brexit and the impact of the US trade war.

She has consistently refused to break Labour's manifesto pledge that rules out increases to employee national insurance contributions, VAT or income tax.

The IFS believed that a "bold" tax-raising budget could also help bring down the cost of borrowing by improving bond market confidence in the UK's public finances.

Long-term borrowing costs recently stood at levels not seen since the last century.

Ms Reeves will be reluctant to raise borrowing, given the high yields being demanded of the UK and elevated inflation rates.

There is all sorts of speculation over what measures the chancellor could impose to bolster the coffers.

Her job has been made more difficult by government U-turns on planned welfare and winter fuel payment cuts.

But some of the expected pain could be offset by moves such as taking VAT off energy bills.

Following the publication of the latest borrowing figures, chief secretary to the Treasury James Murray said: "This government will never play fast and loose with the public finances. We know that when you lose control of the public purse it’s working people who pay the price.

"That’s why we plan to bring down borrowing, and according to IMF data, are set to deliver the largest primary deficit reduction in both the G7 and G20 over the next five years.

"We are cutting waste, improving efficiency and transforming our public services for the future – so that we can be rid of costly debt interest, instead putting that money into our NHS, schools and police."

Nabil Taleb, economist at PwC UK, said: "The interest payable on central government debt was higher than any previous September on record. Higher debt servicing costs as a share of total revenues will leave the public finances more exposed to future economic shocks.

"The Chancellor faces an increasingly difficult balancing act ahead of the Autumn budget, with her fiscal headroom all but exhausted by a mix of weaker growth prospects, higher borrowing costs and rising spending pressures.

"An expected downgrade to the OBR’s long-term growth forecasts will only add to the squeeze," he concluded.

(c) Sky News 2025: Highest September borrowing since 2020 and debt interest payments surge ahead of budget