The UK Treasury has said it will need to make tough decisions in next week's budget after higher debt interest payments and pay cuts for public sector workers pushed government borrowing to £16.6. billion last month – the third highest figure recorded in September.
In the latest update on the state of the public finances before Rachel Reeves announces her tax and spending plans next week, the Office for National Statistics (ONS) said the UK's budget deficit was £2.1bn higher on the month last than in the same month of the previous year.
The Metropolis had prepared for a slightly larger deficit of £17.5bn, but the ONS said it was only in the two pandemic-affected Septembers in 2020 and 2021 that the government needed to borrow more.
Treasury Chief Secretary Darren Jones said: “We have inherited a £22 billion black hole in the country’s public finances, including no plan to fund pay settlements for millions of public sector workers. Strikes cost at least £3 billion last year, so it was the right thing to do to end those damaging disputes.
“Resolving this black hole in the budget next week will require difficult decisions to fix the foundation of our economy and begin to deliver on the promise of change.”
Alex Kerr, British economist at Capital Economics, said: “While it is too late for September's disappointing public finance figures to influence the room for maneuver that the Office for Budget Responsibility [OBR] will deliver the budget to the chancellor on October 30, they highlight the limited scope the chancellor has to increase daily spending without raising taxes. That said, if it changes its fiscal rules, it will still have room to increase public investment.”
Last month's deficit was £1.5bn higher than forecast by the OBR, the government's spending watchdog. Taxes were £3.8bn higher than the previous year, while spending rose by £5.9bn.
ONS deputy director of public sector finance Jessica Barnaby said: “Borrowing this month was around £2bn more than last year, making it the third highest figure on record for September.
“While tax revenues increased, this was offset by higher spending, partly due to higher interest on debt and public sector wage increases.”
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The ONS said interest payments on the national debt in September amounted to £5.6bn (up from £1bn the previous year), but that this was because the September 2023 figure had been exceptionally low. .
In the first six months of the 2024-25 financial year, the UK borrowed £79.6 billion, £1.2 billion more than in the same period the previous year.
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