UK government borrowing has climbed to its highest annual level outside the Covid-19 pandemic, driven by record growth in public sector pay, rising welfare costs and mounting debt interest, according to new official figures.
Data published by the Office for National Statistics shows the scale of the challenge facing Chancellor Rachel Reeves as public spending pressures continue to intensify following her first Budget.
Borrowing remains historically high
The ONS said the UK budget deficit stood at £11bn in November, marking the first borrowing figures released since the government announced a £30bn package of tax rises in the autumn Budget.
While November’s deficit was £2bn lower than in the same month last year, total borrowing for the financial year so far has reached £132.3bn.
This represents the largest annual borrowing figure outside the pandemic period, underlining the fragile state of the public finances.
Pay and welfare costs drive spending
The ONS said higher inflation, rapid public sector pay growth and rising welfare payments were the main factors pushing borrowing higher.
Spending on benefits has increased by £15.1bn so far this financial year, reaching £219.3bn, with welfare costs continuing to rise faster than inflation.
Officials warned that benefit spending is likely to remain elevated as cost-of-living pressures persist and economic growth remains subdued.
Public sector wages surge
Figures released earlier this week showed public sector pay rose by 7.6% over the past year, the fastest rate of growth since records began in 2001.
This compares with wage growth of 3.9% in the private sector, highlighting a widening gap between public and private earnings.
The data comes as doctors and other public sector workers continue to threaten or prepare industrial action over pay and working conditions, adding further pressure to government spending plans.
Debt interest drains public funds
Interest payments on government debt totalled £71.1bn so far this financial year, reflecting the impact of higher interest rates and inflation-linked bonds.
The Treasury said around £1 in every £10 of public spending is now being used to service debt, limiting the funds available for public services such as health, education and transport.
Consumer spending shows weakness
The ONS also reported a setback for household spending, with retail sales unexpectedly falling by 0.1% in November.
The decline suggests Black Friday promotions failed to deliver the hoped-for boost to consumer demand ahead of the Christmas period, raising concerns about the strength of the wider economy.
Weaker consumption could weigh on tax receipts in the coming months, complicating efforts to rein in borrowing.
OBR warns borrowing could rise further
The Office for Budget Responsibility has already revised up its borrowing forecast for the year by £20bn, taking its estimate to £138.3bn.
The watchdog warned that borrowing could exceed this figure unless the government sees a strong tax intake in January, when self-assessment payments typically provide a major boost to revenues.
Treasury response
Commenting on the figures, Treasury chief secretary James Murray said taxpayers’ money must be spent wisely at a time of sustained fiscal pressure.
He said the growing cost of debt interest represents money that could otherwise be invested in public services or economic growth.
Fiscal balancing act continues
The latest data highlights the difficult balancing act facing Chancellor Rachel Reeves as she seeks to stabilise the public finances while protecting public services and supporting households.
With borrowing at historic highs and economic growth fragile, economists say the government faces limited room for manoeuvre in future Budgets.
