The size of the UK public debt skimmed £3 trillion in September in official data released one week before John Healey’s Budget. 

The major milestone reflects the difficulties facing the Chancellor ahead of his maiden fiscal statement. Public sector debt rapidly climbed over the pas six years, exceeding £2 trillion in June 2020.

As a share of GDP, public sector debt stood at 94 per cent, about 0.7 percentage points lower than where it was last year.

Healey is stuck between relieving cost pressures for businesses and households, and ensuring that borrowing targets he has set himself are met despite narrow margins. 

The Office for National Statistics said government borrowing over September totalled nearly £25bn, which was above market expectations of around £23bn. 

It added that debt interest payments over the month reached £10.9bn, reflecting pressure in bond markets as gilt yields soared to highs not seen in this century over September. The data confirms that the Labour government has spent more than £200bn in paying off lenders since the 2024 election. 

ONS chief economist Grant Fitzner said: “Borrowing in the first six months of the current financial year remained below the same period last year, thanks to higher receipts, although it was still above the official forecast.

“Preliminary figures suggest that although debt in cash terms continues to rise, as a proportion of GDP it has fallen over the year. On this latter basis it remains at levels last seen in the early 1960s.”

Debt warnings ahead of the Budget

A rout in global bond markets since March, requirements to plug a hole in defence spending plans and other updates on the fiscal outlook are likely to bring the size of Healey’s headroom against his fiscal rules from £23.6bn to around £12bn, economists have predicted. 

Healey’s rules state that the current budget – or the balance between day-to-day expenditure and tax receipts – should be in balance by the third year of the Office for Budget Responsibility’s fiscal forecast. 

Healey said: “We know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide.

“Last week the IMF said our UK fiscal discipline stands out with the lowest forecast deficit in the G7 by 2029. And today we’ve given the green light to getting North Sea gas from the Jackdaw field, investing the revenues in our clean energy future and supporting British workers.

“In my Budget next week, I will keep up this momentum. Maintaining our fiscal discipline and drive for growth in every postcode, while giving businesses and families some breathing space.”

Spending pressures mount

The Chancellor is coming under pressure to raise spending further ahead of a crunch Spending Review next year, in which he will set out a route to raise defence spending to three per cent of GDP, which could cost the government up to around £11bn more in spending each year. 

Ruth Gregory, Capital Economics’ deputy chief UK economist, said high levels of borrowing backed up her view that the Chancellor would leave “the toughest fiscal choices for next year”.

The Resolution Foundation noted that an overshoot in government borrowing was driven by net social benefits including pensions.

The OBR is expected to highlight the scale of that challenge when it assesses his fiscal plans, according to economists. 

ITEM Club economist Matt Swannell said that the OBR typically raised concerns at budgets held near a Spending Review. 

Previous fiscal reports have rung the alarm on governments raising plans for public spending shortly before settlements are decided between ministers. 

The City economist said he thought it was “plausible” that this pattern could repeat itself, “potentially paving the way to a broader fiscal policy overhaul in 2027”. 

Healey is widely expected to make the upcoming Budget a “relatively understated affair”, according to Swannell, leaving big decisions around defence spending or welfare reforms to next year.