Last month, the UK’s government borrowing reached £16.6 billion, making it the third-highest September on record since January 1993. This is causing a lot of concern, especially with the upcoming Budget on October 30. The big question is: How will the government manage this growing debt?

Why is the UK Borrowing So Much?

The UK borrows money when it spends more than it collects in taxes. Borrowing helps to fill the gap between what the government needs to spend and what it actually has. However, this rising debt is becoming a big issue. The Office for National Statistics (ONS) says that the debt increase is due to two main reasons: higher interest on previous debts and pay raises for public sector workers. For example, junior doctors received a pay raise from the Labour government, which settled a long-running strike.

But there was some good news too. Social benefits, such as winter fuel payments for wealthier pensioners, were reduced. This saved the government £2 billion, bringing the total social benefits bill down to £25.7 billion. Even though this saved money, it wasn’t enough to stop borrowing from rising.

Budget Challenges Ahead

The upcoming Budget is going to be a tough one for the new Labour government. Chief Treasury Secretary Darren Jones said that Labour has inherited a financial “black hole” from the previous government, meaning they are dealing with a lot of debt. As a result, the government needs to make “difficult decisions” to sort this out. Economists think that these tough choices could include raising taxes or cutting spending to reduce borrowing.

Labour has promised not to borrow more for day-to-day spending, but there is talk that they might change their debt rules to allow more borrowing for long-term investments, like big infrastructure projects. These are things like building new roads, schools, and hospitals. Such projects can help boost the economy, but they also add to the country’s debt.

The Numbers Don’t Look Good

Economists have been keeping a close eye on the government’s borrowing figures. The Office for Budget Responsibility (OBR), which monitors the government’s spending, predicted that borrowing for September would be £15.1 billion. However, the actual number turned out to be £16.6 billion – much higher than expected. This isn’t the first time the borrowing figures have been higher than the OBR forecast. In fact, every month since June has shown the government borrowing more than predicted.

So far, during the first six months of the financial year, the government has borrowed £79.6 billion, which is higher than the £73 billion forecast by the OBR. Although the borrowing in September was slightly lower than what some economists predicted, it’s still a worrying trend.

What Could Happen Next?

There are many guesses about what the government might do next. Some experts believe that Labour will change the way it handles borrowing. Alex Kerr, a UK economist at Capital Economics, said that while there is little room to increase day-to-day spending without raising taxes, the government could still find ways to increase public investment by adjusting its fiscal rules. This means Labour could spend more on things that benefit the country in the long term, like improving infrastructure, without breaking their promise not to borrow for regular expenses.

However, others are concerned that raising taxes or cutting spending may be unavoidable. Labour is under pressure to fix the financial issues they inherited, and these are tough choices they’ll need to make soon.

Why Is Borrowing a Big Deal?

The UK’s national debt now stands at 98.5% of the country’s economic output. This means that for every £1 the country earns, it owes almost £1 in debt. This level of debt is something the UK hasn’t seen since the early 1960s. The growing debt and borrowing add to the challenges the government faces in the coming months.

One of the main reasons borrowing is so high is because of the interest that needs to be paid on previous loans. Just like when people take out loans and have to pay interest, the government has to pay interest on the money it borrows. As interest rates have gone up recently, it’s costing the government even more to repay its debts.

What Does This Mean for Everyday People?

All this borrowing affects regular people too. If the government decides to raise taxes to deal with the debt, it could mean that people have to pay more out of their income. On the other hand, if the government chooses to cut spending, services like healthcare, education, and public transport might get less money, which could impact the quality of those services.

For now, it’s a waiting game. The government will reveal its plans in the Budget on October 30, and everyone is eager to see how they will tackle the rising debt and borrowing.