Government borrowing hits second-highest August on record in setback for Healey

UK Government borrowing rose in August to the second-highest level for the month on record, coming in above forecasts and piling pressure on Chancellor John Healey ahead of his first autumn Budget, figures show.

Public sector net borrowing rose to £18.3 billion in August, which was £3.5 billion more than what official Government forecasters had been expecting, the Office for National Statistics (ONS) said.

The figure was £2.9 billion, or 19%, more than the same month last year and marked the second-highest August borrowing on record, behind that of 2020.

Public sector net borrowing shows the difference between what the Government spends on the public sector and what it makes from taxes and other income.

The ONS said the jump was driven by spending increasing more than the Government was generating from taxes and other receipts.

This partly reflected inflation-related costs and spending on the state pension and other benefits.

Furthermore, the amount that central Government paid in interest on its debts was £8.8 billion in August, marking the highest figure for the month since records began.

This was a partly a result of higher inflation pushing up the interest payable on Retail Prices Index (RPI)-linked Government bonds, known as gilts, which is making the costs more volatile.

Rising debt interest costs are set to create challenges for Mr Healey whose fiscal headroom remains stretched, a month away from him delivering his first autumn Budget statement in October.

Economists for KPMG predicted on Monday that rising borrowing costs on the UK’s debt after the Middle East conflict has already cut about £9 billion off the headroom.

Coupled with sluggish economic growth, this could leave him with a buffer of about £12 billion in the autumn, they said.

Emma Reynolds, the Chief Secretary to the Treasury, said: “Britain has huge potential to deliver good growth in every postcode, creating jobs, raising living standards and investing in the services people rely on.

“But we can only deliver that growth with fiscal discipline.

“At a time when debt interest costs billions of pounds that could otherwise be spent on improving lives, we must always know where the money is coming from to pay for public services.

“That is why we are committed to meeting our fiscal rules with a buffer against uncertainty, taking the tough decisions needed to keep the public finances on a sustainable path.”

Since April, the start of the financial year, the Government has borrowed £77.3 billion.

This is £2.2 billion less than over the same period last year, but £8.1 billion more than the Office for Budget Responsibility’s (OBR’s) forecast in March.

Experts said the latest borrowing figures indicate that the Chancellor and Prime Minister face the prospect of having less room to deliver on their priorities such as strengthening cost-of-living support.

Matt Swannell, chief economic adviser to the Item Club, said: “Prime Minister Andy Burnham has previously hinted at measures to ease the cost of living, but the latest leg up in Government borrowing costs limits the scope for significant support.

“Instead, the Chancellor may have to announce modest fiscal tightening to preserve a tolerable margin for error against the fiscal rules.”

Thomas Pugh, chief economist at RSM UK, said: “The jump in borrowing in August compared to last year sets the stage for what is likely to be a much trickier Budget than Burnham or Healy anticipated when they came to power just a few months ago.

“Another round of tax rises in October now looks inevitable.”

Mr Pugh estimated that the Chancellor’s fiscal headroom will be between £10 billion and £15 billion – which is less than the £24 billion left by his predecessor Rachel Reeves to balance the books.

“As long as the headroom is in double figures he will probably be able to avoid topping it up, but the drop means any additional day-to-day spending, such as on defence or cost of living, will have to be paid for by higher taxes,” he said.

Andrew Griffith, shadow chancellor for the Conservatives, responded to the ONS’s latest figures to say the Labour Government has “lost control of the public finances”.

“They are borrowing so much they’ve overshot the OBR forecast by an extra £8 billion of debt,” he said.

“It takes a rare fiscal incontinence to both have the highest tax take in history and see borrowing still shoot up.”

Published: 22/09/2026 by Radio NewsHub