National Debt and Borrowing in August Means Scary Autumn Budget

There has been much debate around the soundness or not of Rachel Reeve’s taxation and borrowing/spending policy and her fiscal rules given her rules on borrowing are apparently ‘non-negotiable’..

The Rules

• Budget Stability – spending must not exceed tax revenue received.
• Reduce National Debt – must be falling as a % of GDP within a 5-year period.

Last week, the Office for National Statistics (ONS) published the UK’s public sector borrowing figures for August 2025.  These do contrast a little with the Office for Budget Responsibilities (OBR) forecasts where the OBR forecast government borrowing to fall to £117.7bn in 2025/26 compared to the revised actual borrowing of £146.3bn in 2024/25.

Still Borrowing Too Much?  Highest August Borrowing in 5 years

In August alone, ONS figures show that public sector net deficit i.e., spending more than is coming in was £18bn.  This was

• £3.5bn more than August 2024.
• £10.2bn more than August 2025.
• £5.5bn more than the OBR’s forecast.

Government Borrowing Interest Rates (Yields) Are Up Too

In August 2025 interest payments were at £8.4bn, up £0.9bn above the previous month.  Investor confidence in the Government is low, meaning they are less confident of the government paying its debt interest and thus interest rates demanded/paid are higher for a perceived greater risk.   In mortgage terms, British Government borrowing is in the realms of ‘Adverse Credit Mortgages’ and the total interest bill for the year is going to be huge, if we continue paying £8bn a month in interest alone.

Comment

We are already in September, and the August figures are therefore just 5 months into the new tax year with cumulative borrowing at £60.0bn, just £0.1bn above the OBR projection. That said, last year overall public sector debt (ex banks) was 95.6% as a percentage of Gross Domestic Product (GDP), but this has now climbed to £2,909.4bn, the equivalent to 96.4% of GDP,  up a massive 0.8% for the year and 0.2% up on the revised July figure alone.

Reeves’ plan is not going to plan!

The current budget deficit, the Chancellor’s main fiscal target (in 2029/30), is £5.6bn worse than even projected back in March.  While the August’s deficit is smaller than expected, our fears and thoughts for the Autumn Budget remain grim. Even the most positive forecast suggests the Chancellor will need to find an additional £20bn in tax rises or spending cuts.

Tax rises are inevitable as we need to pay our debt down to avoid c£100bn in interest payments per year (that’s nearly double our defence budget spend just on interest).

• Personal Tax Allowances will be frozen despite Reeves’s promise to start increasing this by now.
• Stamp duty may be replaced by a property/wealth tax for properties above say £0.5m to £1m.  We may even lose ‘Stamp Duty’ on purchase altogether, and have a new ‘Sales Tax’, to benefit from price rises, but we cannot see this happening as it will discourage people from selling up, keep housing supply low.
• National insurance contributions (NICs) on dividends and rental income profits would appear a natural solution, why should someone who earnings are solely from property income pay no NIC, but an employee and employer does?  Why should the self employed, and partnerships also pay lower rates of NIC?
• The Triple Lock on State Pensions should go and move to a double lock of CPI or 2.5% pa only.  We cannot afford the 4.7% rise (linked to earnings inflation) for State Pensions in April 2026.
• The Chancellor should break the Labour Party Manifesto promise and increase income taxes for all (including working people) by say 1 to 2% pa.  Back in the 60s, standard rates of tax were approximately 38.75% and even higher for high earners.  Even in 1971, the income tax basic rate was 30% climbing to 38.75% in 1972/73 and higher rate income tax was over 70%. 

We cannot expect high levels of NHS and social care services that we all desire by paying just 20% basic rate income tax.  Can a government, any UK government in fact (whether Red, Blue, Green, Yellow or Turquoise) act in the best interests of the people and not with an eye on their own popularity or re-election.  We suspect no politician has the ‘gumption’ do to this and politicians will continue to pick off the lowest