Government borrowing surged to £16.6bn last month

Government borrowing has exceeded official forecasts by £6.6 billion so far this year, demonstrating the tight fiscal bind confronting Rachel Reeves before the budget next week.
According to figures published by the Office for National Statistics, the government borrowed £16.6 billion in September, up by £2.1 billion from the same month last year and the third highest total for that month on record. City analysts had expected the deficit to total £17.5 billion last month.
September’s deficit means that the government is now £6.6 billion in excess of the Office for Budget Responsibility’s cumulative borrowing forecast so far this year of £73 billion.
The October budget, the first to be delivered by a female chancellor in Britain, comes after a lacklustre first 100 days in power for the government, which has been overshadowed by party infighting over the retention of the two-child benefit cap, a public backlash over the scaling-back of the winter allowance for pensioners and a freebies scandal.
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The announcement will launch the first stages of the government’s economic strategy that will shape tax and spending policy over the next five years. Reeves and Sir Keir Starmer, the prime minister, have insisted that Labour needs two parliamentary terms to repair the UK’s ailing public services and reanimate economic growth.
The chancellor is preparing to launch £40 billion of fiscal tightening at the budget next Wednesday to narrow the government deficit, most of which will come from tax rises, potentially including capital gains tax increases and subjecting employers’ pension contributions to national insurance.
According to the ONS, the debt-to-GDP ratio hit 98.5 per cent in September, the highest level since the 1960s. Debt interest spending, which has become a constraint on the public finances thanks to rising interest rates, totalled £5.6 billion in September, up from £1 billion in the same month last year.
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Jessica Barnaby, deputy director for public sector finances at the ONS, said: “Borrowing this month was about £2 billion up on last year, making this the third highest September figure on record. While tax revenue increased, this was outweighed by increased spending, partly due to higher debt interest and public sector pay rises.”
The chancellor could offset tax rises with increases in public investment spending, which economists have argued is necessary to revive the UK’s flagging growth rate. She may change the public debt definition to include the value of the government’s physical and financial assets, potentially increasing the headroom against the fiscal targets by £50 billion.
Such a tweak to the fiscal rules would result in the so-called golden rule, effectively financing day-to-day government spending with tax revenues, becoming the binding constraint.
Reports last week indicated that cabinet ministers were concerned about the scale of budget cuts planned by Reeves. NHS funding is likely to rise in real terms, but unprotected government departments, such as local councils, could see their spending allocations trimmed.
Jeremy Hunt, the previous Conservative chancellor, was judged by the Office for Budget Responsibility to have £8.9 billion of headroom against his fiscal targets after the last budget in March this year.