Britain's total government debt has crossed £3 trillion for the first time, according to figures released this week. The Treasury posted a £24.5bn budget deficit for last month, more than analysts expected, as rising inflation pushed up the cost of servicing existing bonds.
Debt interest payments hit £10.9bn in September, the highest figure for that month on record. Some UK bonds are linked directly to the retail prices index, so when inflation rises, so do the payments. The Office for National Statistics said the Iran war's effect on energy costs added £4bn to interest costs in September alone. As a share of the overall economy, debt has actually eased slightly, down to 94% from 95% a year ago, even as the cash total climbs.
The monthly deficit was up from £17bn in August and came in £1.9bn above the Office for Budget Responsibility's forecast. For the financial year so far, borrowing stands at £97.8bn, which is £4.4bn less than the same point last year but still £6bn above what the OBR predicted.
Chancellor John Healey faces his first budget next week with less room to maneuver than his predecessor, Rachel Reeves, had in the spring. Henning Diederichs of the Institute of Chartered Accountants in England and Wales said rising borrowing costs and inflation make debt servicing a major concern, and warned that unclear rules around the government's new budget balance definition could spook investors and push borrowing costs even higher.
For small and medium businesses, this matters beyond the headline numbers. A government with less fiscal headroom tends to look for revenue wherever it can find it, through taxes, fees, or reduced grants and support schemes. Energy costs are already a live concern for the budget, and any decision on support, or lack of it, will hit smaller firms harder than large ones with hedging in place. Borrowing costs also feed into gilt yields, which shape the rates businesses pay on loans and credit. A chancellor under pressure to balance the books with little room for error is not a reassuring signal for firms planning next year's costs.