The UK government borrowed £97.8bn in the six months to September 2026, highlighting the continuing pressure on public finances as rising debt costs limit the money available for public services and investment.
According to the latest figures from the Office for National Statistics (ONS), government borrowing during the period was £4.4bn lower than in the same six months a year earlier. However, it exceeded the Office for Budget Responsibility’s (OBR) forecast by £6bn.
In September alone, borrowing reached £24.5bn, an increase of £1.8bn compared with the same month in 2025.
Government borrowing occurs when public spending exceeds the money raised through taxes and other revenues. Although borrowing can support economic growth and finance major infrastructure projects, it also increases national debt and the interest payments required to service it.
Why Does the UK Government Borrow Money?
The government generates most of its revenue through taxes, including income tax, National Insurance contributions, value-added tax (VAT) and corporation tax.
When these revenues are insufficient to cover spending, ministers can raise taxes, reduce expenditure or borrow additional funds.
Increasing taxes can leave households with less disposable income and businesses with lower profits, potentially affecting investment, employment and wages. Spending cuts can also put pressure on public services and infrastructure development.
Borrowing therefore provides governments with another way to fund essential services, support economic activity and finance long-term projects such as roads and railway networks.
However, borrowing must be managed carefully because the money raised today has to be repaid in the future, usually with interest.
How Does the Government Borrow Money?
The UK government raises money by issuing financial instruments known as government bonds, commonly called gilts.
A gilt represents a loan to the government. Investors provide money upfront in exchange for a promise of repayment, usually alongside regular interest payments.
These bonds are purchased by domestic and international investors, including pension funds, banks, insurance companies and investment funds.
The government issues gilts with different repayment periods and interest rates, allowing it to finance spending over both short and long-term horizons.
UK government bonds are generally regarded as relatively safe investments, although their market prices can fluctuate and their returns are affected by interest rates and inflation expectations.
UK National Debt Exceeds £3 Trillion
The UK’s total public sector net debt has climbed to slightly more than £3 trillion, approaching the annual value of all goods and services produced by the economy, known as gross domestic product (GDP).
The debt burden has increased significantly since the 2008 global financial crisis, with the economic disruption caused by the Covid-19 pandemic adding further pressure to public finances.
Despite the increase, the UK’s debt relative to the size of its economy remains below levels recorded during some periods of the previous century. It is also lower than the equivalent measure in certain other major economies.
National debt represents the accumulated amount the government owes, while borrowing measures the additional amount it needs to raise over a particular period.
Government Debt Interest Payments Increase
The cost of servicing government debt has become a growing concern as interest rates have risen from the historically low levels recorded during much of the 2010s.
The Bank of England began increasing interest rates in 2021 before reaching a peak of 5.25%. It subsequently began cutting rates in 2024, with the rate standing at 3.75% in the figures reported by the BBC.
However, uncertainty surrounding the economic consequences of the Iran war has reduced expectations of further rate cuts in 2026, while the possibility of additional increases has also attracted attention.
In September 2026, the government paid £10.9bn in interest on its debt, £1.6bn more than in the same month a year earlier.
Higher interest payments mean the government must devote more of its revenue to servicing existing debt rather than funding areas such as healthcare, education, transport and other public services.
Fiscal Rules Put Pressure on Government Spending
The scale of borrowing is also important because the government has committed to meeting fiscal rules designed to keep public finances sustainable.
When Labour came to power in 2024, it retained a commitment that government debt should fall as a proportion of the economy within five years.
In the October 2024 Budget, then Chancellor Rachel Reeves changed the measure used to assess compliance with the debt target, allowing greater scope for borrowing to finance investment.
The government adopted a broader measure known as public sector net financial liabilities (PSNFL). Unlike conventional public sector net debt, this measure includes certain financial assets, such as the value of student loan repayments expected to be received.
Under this measure, public sector net financial liabilities stood at £2.6tn at the end of September 2026, equivalent to 82.7% of GDP.
The Institute for Fiscal Studies (IFS) has criticised the government’s emphasis on meeting its fiscal rules, arguing that an excessive focus on specific targets can contribute to ineffective policymaking.
Nevertheless, Chancellor John Healey has committed to maintaining the government’s fiscal framework.
The challenge is to balance investment in economic growth with the need to maintain sustainable public finances and retain investor confidence.
What Is the Difference Between Government Debt and the Deficit?
Although the terms are closely related, government debt and the budget deficit describe different things.
- Government debt: The accumulated amount the government owes from years of borrowing.
- Budget deficit: The amount by which government spending exceeds its income over a particular period.
- Budget surplus: A situation in which government income exceeds spending.
When the government runs a deficit, it generally needs to borrow more, increasing the national debt. When it records a surplus, it can use the excess revenue to reduce outstanding debt, although other financial transactions can also affect the total.
Why Government Borrowing Matters to the Economy
The UK’s borrowing figures illustrate the difficult choices facing policymakers as they seek to support economic growth while controlling public spending.
Additional borrowing can finance infrastructure, strengthen public services and encourage investment. However, excessive borrowing can increase interest costs, reduce fiscal flexibility and leave the government more exposed to changes in financial markets.
With debt interest payments rising and borrowing exceeding official forecasts, the government faces continued pressure to balance its investment priorities against its commitment to fiscal discipline.
How effectively ministers manage that balance will influence the UK’s public finances, economic growth and ability to fund essential services in the years ahead.
