This morning has brought more news on what has become a familiar theme, which is disappointing news from the UK Public Finances,
Borrowing – the difference between total public sector spending and income – was £20.2 billion in September 2025; this was £1.6 billion (or 8.6%) more than in September 2024 and the highest September borrowing since 2020.
As you can see the headline is higher than last year and is yet another month where we borrow what the present Chancellor Rachel Reeves has defined as a “Black Hole”. This reminds me that back on the 27th of May I pointed out that fiscal policy was out of control.
The UK government is acting as if bond issuance is both cheap and available in plentiful supply when neither is true. For many it may seem an arcane matter but it does matter especially when you have embarked on a policy of extra spending.
Such a theme is further confirmed if we look at the fiscal year so far.
Borrowing in the financial year to September 2025 was £99.8 billion; this was £11.5 billion (or 13.1%) more than in the same six-month period of 2024 and the second-highest April to September borrowing since monthly records began in 1993, after that of 2020.
Remember all the grand words about fiscal rules from the UK Chancellor? Many were taken in but I did warn that these always turn out to be at best ineffective and at worst meaningless. In fact they may mae things worse as they provide cover for extra spending.Also back on May 27th I pointed out a nuance to policy.
Replacing the Chancellor would be one route and another is setting fiscal policy for her.
The UK Prime Minister Kier Starmer has intervened over the Winter Fuel Allowance and since then on benefits cuts. So he too is wedded to loose fiscal policy. Such thoughts are reinforced by the Chagos deal getting a third reading in Parliament overnight as it will cost £30 billion over the years.
What happened in September?
There was good news on the revenue front.
Central government’s current receipts were £86.2 billion in September 2025, £6.8 billion (or 8.6%) more than in September 2024.
There is a nuance in that some of it could be a signal of a stronger economy as the higher revenue looks broad based, but the second part is higher taxes imposed by last October’s Budget.
central government tax receipts increased by £3.6 billion to £63.1 billion; this included increases of £1.3 billion in Income Tax, £1.0 billion in Value Added Tax and £0.7 billion in Corporation Tax receipts
compulsory social contributions increased by £3.2 billion to £16.9 billion; on 6 April 2025, changes to the rate of National Insurance contributions paid by employers came into effect.
The catch here is that if they revenue figures are good and borrowing was higher we already know that spending must have risen again.
Central government’s current expenditure was provisionally estimated as £90.6 billion in September 2025, £8.1 billion (or 9.8%) more than in September 2024.
An increase of that magnitude is a combination of deliberate policy and an inability to make any sort of reduction to spending. This is why our bond yields are relatively high as financial markets spotted this and charge is extra in response.
In terms of the detail there is this.
central government debt interest payable increased by £3.8 billion to £9.7 billion, with movements in the Retail Prices Index (RPI) adding volatility to the monthly debt interest costs.
We open with what is a critique of the wider UK establishment in that the Bank of England has not helped as it cuts interest-rates in the face of rising inflation which is likely to have a 4% big figure tomorrow. It ran a risk and we are losing.
central government departmental spending on goods and services increased by £2.6 billion to £38.3 billion, as pay rises and inflation increased running costs
net social benefits paid by central government increased by £2.0 billion to £27.5 billion, largely caused by inflation-linked increases in many benefits and earnings-linked increases to State Pension payments.
An attempt to mislead
Government’s always have a number they prefer and 100% of the time is gives a lower or smaller number. But even that is not going well. They want us to look at this.
The current budget, which is usually in deficit, can be considered as borrowing to fund day-to-day public sector activities……The current budget deficit was £13.4 billion in September 2025; this was £2.3 billion (or 21.2%) more than in September 2024.
The objective of a lower number rather starts to backfire as we see it is up by 21%. There is another backfire within that. Because we are supposed to concentrate on that because other borrowing is for the nice friendly concept investment. Except that has fallen.
Net investment was £6.9 billion in September 2025, which was £0.7 billion (or 9.6%) less than in September 2024.
So much for growth driven policies and national renewal and the like.
Borrowing Costs
We can use the September data to shed more light on this.
central government debt interest payable increased by £3.8 billion to £9.7 billion, with movements in the Retail Prices Index (RPI) adding volatility to the monthly debt interest costs.
So we can start with it being an increasing problem. The next factor is that it is an institutional failure as last October’s Budget raised inflation and as I pointed out earlier the Bank of England has cut interest-rates claiming “disinflation” as it gas risen leading to this.
The £9.7 billion interest payable on central government debt in September 2025 includes £2.7 billion of capital uplift. This largely reflects the 0.4% increase in the RPI between June and July 2025.
The RPI inflation measure has been above 4% for a while now and is likely to move closer to 5% tomorrow.
The second factor here is conventional debt costs with our bond yields so high. Over the past week or so we have had some better news with our ten-year yield falling to 4.5%. Whilst any reduction in yield helps we are still paying extra and remember it is on ever more bonds as we keep increasing borrowing, this time around by a Black Hole. That added around another £1.1 billion to expenditure in September.
If we look at the fiscal tear so far it all adds up to a tidy sum.
interest payable on central government debt increased by £14.4 billion to £59.5 billion, largely because the interest payable on index-linked gilts rises and falls with the Retail Prices Index.
National Debt
This is the official number these days.
The net debt-to-GDP ratio at the end of September 2025 was provisionally estimated at 95.3%, 1.0 percentage points more than a year ago.
These days the gross debt figure is above £3 trillion but you have to look deeper to spot that.
The first rule of OBR Club is that it is always wrong
Strikes again.
Provisional estimates show it borrowed £99.8 billion over the six-month period, £7.2 billion (or 7.8%) more than the £92.6 billion forecast by the Office for Budget Responsibility in March 2025.
Comment
My analogy of a snowball rolling down a hill is where the UK Public Finances are.Each time you look it has rolled further and picked up more snow. The short-term fix is higher taxes but they weaken the economy and the cycle starts again. In response the present government looks powerless.
