UK Public Sector Finances Show Worsening Position In September 2025

21st October 2025

The latest figures released by the Office for National Statistics (ONS) for September 2025 show continued pressure on the UK's public finances, reinforcing a challenging fiscal backdrop for the government.

In September 2025 alone public sector net borrowing (i.e., the shortfall where spending exceeds income) reached about £20.2 billion making it the highest such figure for any September in five years.

Over the first half of the 2025-26 financial year (April to September) borrowing stood at £99.8 billion and hat is around £7.2 billion more than forecast by the Office for Budget Responsibility (OBR).

The public sector net debt ratio remains elevated. At the end of July 2025 it was about 96.1% of GDP, slightly higher than the year before.

On the revenue side, tax and social contributions have been increasing (helped by inflation and wage growth), but rising costs — particularly debt-interest payments and welfare spending — are outpacing the receipts.

What's Driving the Weakening Gap

Debt servicing costs
With large amounts of government debt, interest payments are rising and heavily impacted by inflation-linked components, increasing the fiscal burden.

Welfare and public services spending
Inflation and demographic pressures are pushing up spending on benefits, health and other services.

Receipts growing but not fast enough: While tax income is increasing, it hasn’t kept pace with the rate at which spending and debt costs are rising.

Forecast overshoot
The borrowing is running ahead of earlier forecasts, giving less fiscal headroom than expected and complicating budget planning.

Implications for the Government and Economy

Rachel Reeves (Chancellor of the Exchequer) faces a significant challenge ahead of the Autumn Budget: to close the fiscal gap without overly dampening economic growth or reneging on policy promises.

With limited fiscal "wiggle room", trade-offs loom: higher taxes, slower spending growth, or both. Analysts suggest the gap could be in the region of £20-30 billion for the upcoming fiscal rounds.
Financial Times

The high debt ratio limits flexibility in future downturns or shocks, meaning the UK’s fiscal position is less resilient than desirable.

For households and businesses, the implications may include slower public investment growth or pressure on public services if spending is constrained, or higher taxes if revenue increases are chosen instead.

While the September figures don’t represent a sudden fiscal crisis, they do underline a persistent structural challenge.

The UK is borrowing at elevated levels, debt is high, and spending pressures (especially debt interest and welfare) are growing faster than revenue. Closing that gap will require either stronger growth, improved efficiency in spending, or a combination of revenue increases and spending restraint.