The UK government recently announced that borrowing costs hit £16.6 billion last month, making it the third-highest September debt figure in the country’s history. Why did this happen? Well, much of the borrowing was caused by the government’s decision to raise pay for public sector workers, such as teachers, nurses, and firefighters. This pay raise, along with higher interest on debt, left the UK Treasury in a tricky spot, right before an important budget announcement.

What’s Going On With UK Debt?

Public sector workers are those who work for the government in services like healthcare, education, and transportation. Over the last year, many of them went on strike because they wanted higher pay. Strikes like these caused delays in schools, hospitals, and transport systems. To stop these strikes and ensure workers got paid fairly, the government agreed to increase wages. However, this decision has added extra costs to the UK’s budget.

The Treasury now says it has to make “difficult decisions” when it presents the country’s next budget. A budget is when the government announces how it plans to spend money for the year ahead. It’s like when your family decides what bills need to be paid and how much to spend on groceries. The UK government is in a similar position but on a much bigger scale.

Higher Debt and Public Worker Pay

Last month, the UK borrowed £16.6 billion, which is a lot of money! This amount was only topped by two other Septembers—those during the pandemic in 2020 and 2021. Back then, the country had to borrow a ton of money to help people who lost jobs or businesses due to COVID-19. Now, the government is borrowing for a different reason: to cover the higher costs of running the country, especially the increase in pay for millions of public workers.

Darren Jones, the chief secretary to the Treasury, explained that the government inherited a “£22 billion black hole” in the country’s public finances. This means there was already a big gap between what the government earned from taxes and what it needed to spend. According to Jones, one of the reasons for this gap is the £3 billion lost last year because of strikes. “It was the right thing to do to end those damaging disputes,” he said, referring to the decision to settle with public workers.

What Does This Mean for Next Week’s Budget?

Rachel Reeves, the chancellor (who is like the government’s main financial planner), is expected to announce a new budget next week. But because the UK already owes so much money, she doesn’t have much room to spend more unless the government either borrows more or raises taxes.

Alex Kerr, an economist at Capital Economics, said that last month’s financial figures are too late to affect the upcoming budget. However, they do show that the government doesn’t have a lot of options to increase everyday spending without finding new ways to get more money. But Kerr also mentioned that if Reeves changes some of her financial rules, she could still find space to increase public investments, like building new roads or schools.

How Did the Numbers Add Up?

So, why exactly is the UK borrowing so much? According to the Office for National Statistics (ONS), last month’s borrowing was £1.5 billion higher than expected. The government collected £3.8 billion more in taxes than it did in the same month last year, but spending increased even more, going up by £5.9 billion.

Jessica Barnaby, the deputy director for public sector finances at the ONS, explained it like this: “Borrowing this month was about £2 billion up on last year, making this the third highest September figure on record.” In simple terms, the government’s income (taxes) grew, but its expenses (like public worker pay) grew even faster.

One of the reasons the government spent more money was because interest on national debt—the money the country owes to lenders—shot up. In September 2024, the UK paid £5.6 billion in interest, which was a big jump from £1 billion a year earlier. Barnaby said this was because the 2023 interest payments were unusually low, so the increase seems more dramatic.

The Bigger Picture

In the first six months of the current financial year (from April to September 2024), the UK borrowed £79.6 billion. That’s £1.2 billion more than it borrowed during the same period last year. This shows that the country’s debt situation has been building for a while.

So, what’s the plan moving forward? With the upcoming budget, the government is likely to face tough choices. It can’t keep borrowing at this high rate forever, or it will struggle to pay back the debt in the future. This means we might see changes in how much money is spent on public services or possible tax hikes to help cover the gap.

What Happens Next?

Everyone is waiting for Rachel Reeves to present her new budget next week. People are eager to see if taxes will go up or if public spending will be cut to cover the costs of debt and pay raises. It’s a difficult situation for the government, but one thing is clear: big decisions will need to be made.

In the end, while borrowing money can help in the short term, it’s important to keep an eye on the long-term effects. How will the UK manage its finances? Will more borrowing be needed, or will the government find other solutions? Only time will tell.