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Government borrowing hit £20.2 billion in September, the highest for that month in five years, according to the Office for National Statistics.
It means the Chancellor of the Exchequer is under pressure ahead of the November Budget, as she struggles to meet her self-imposed fiscal rules.
Here‘s the BBC:
Borrowing – the difference between public spending and tax income – was £20.2bn in September, up £1.6bn from the same month last year, the Office for National Statistics (ONS) said.
A rise in debt interest payments offset the increased amount the government had raised through tax and national insurance, the ONS said.
Chancellor Rachel Reeves is widely expected to raise taxes in November’s Budget in order to meet her self-imposed rules for government finances.
Borrowing over the first six months of the financial year has now reached £99.8bn, which the ONS said was the second-highest total for that period since monthly records began in 1993, after that of 2020.
The OBR is set to update its forecasts next month – laying out how much of a shortfall the government will need to make up if it is to meet its own tax and spending rules by the end of the current parliament.
So borrowing rose despite higher tax receipts, because spending increased even more.
The government had to pay £9.7 billion in debt interest, up £3.8 billion on the same month last year, and inflation-linked pay rises and benefits have also increased the state’s running costs.
Reeves’s self-imposed fiscal rules require debt to be falling as a share of GDP within five years and day-to-day spending to be covered by government income.
Economists are warning that Reeves will need to find around £27 billion in next month’s Budget to stay within her rules – most of it through tax rises.
That’s likely to test both her fiscal and political credibility: if growth keeps stalling and borrowing stays high, she may soon face a choice between breaking her own rules or breaking her promises to voters.
And that is her current choice: raise taxes, cut spending, or break her own rules.
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The real problem
The reason those “running costs” are rising is not just pay or inflation.
Here’s the full picture that the BBC isn’t giving you:
The ONS and most independent analysts point to three immediate contributors to the recent rise: (1) much higher debt interest payments as rates and outstanding debt rise; (2) higher day-to-day spending (pay settlements, inflation-indexed benefits and running costs); and (3) weaker-than-expected receipts in some tax categories.
“Day-to-day spending” includes every penny the government pays for day-to-day operations – and that means the vast sums spent on outsourcing, PFI contracts, and privatised utilities that successive governments sold off under the promise of efficiency.
That promise was false.
When national assets and services were sold off to the private sector, the state didn’t stop needing them — it just ended up paying rent to use what it used to own outright.
That rent comes in the form of:
-
PFI contracts (Private Finance Initiative deals) for hospitals, schools and infrastructure, which still cost billions every year;
-
Leases and outsourcing costs for offices, maintenance and public services that used to be handled in-house;
-
Energy, water and transport bills, all of which are higher because the companies running them are driven by profit, not public need.
So a large and growing chunk of what Reeves calls “public spending” is really private profit guaranteed by the taxpayer.
The more the government pays to the privateers, the higher the baseline cost of government becomes — before a single penny goes on nurses, teachers or benefits.
The truth is that the state is now renting back what it used to own – hospitals, schools, railways, water, energy, IT systems, maintenance and cleaning services – all at inflated prices that build in private profit.
For example, government data and parliamentary reports show PFIs remain on the books and that long-running contracts create guaranteed payments by the public sector over many years. That raises the baseline of recurrent public spending compared with when the state owned and directly operated those assets.
The National Audit Office has shown time and again that private finance deals end up costing the public 20–40 per cent more than direct public investment. Those deals haven’t gone away; they’re still draining the Treasury decades after the headlines faded.
Reeves’s fiscal rules don’t account for this structural damage. They make it look as though public services are unaffordable when, in reality, it is the privatisation model itself that is bleeding the public purse.
Higher running costs due to privatisation are now “baked in” to the public finances.
They inflate the baseline of current spending, which means Reeves’s fiscal rules — designed around hitting narrow borrowing targets — are harder to meet even if she freezes departmental budgets.
This is the trap: Reeves can’t get borrowing down without cutting services, because she’s paying private rent on the infrastructure those services rely on.
That leaves her reaching for tax rises on ordinary households, rather than questioning why so much of her budget is flowing to private finance.
The solution
The logical solution isn’t to squeeze working households harder with new taxes, but to recapture public wealth; to reclaim or rebuilt public ownership in key sectors, ending the contractual rents that funnel public money into private hands. That could mean:
-
Raising taxes on the richest individuals and corporations, targeting the people and corporations who gained most from the sell-offs and the financialisation that followed them in order to reverse the concentration of wealth caused by privatisation and financial deregulation;
-
Using those revenues to buy back or rebuild key public assets — energy, rail, water, housing — which would lower long-term costs and bring in steady income again;
-
Ending the dependence on private finance for public infrastructure.
That would not only make the public finances more sustainable but would also restore long-term stability to the economy, replacing private profit extraction with public value creation.
Oh, I know. “Wealth taxes never work.” We’re hearing a lot of that from bought-and-paid-for pundits on the national (especially right-wing) media.
They’re talking hogwash, of course. Significant sums can be raised, simply by taxing the profits of asset ownership effectively, as This Site has argued in the past. I suggested that a government could:
-
Equalise tax on capital gains with income tax. No more rewarding people for making money from money rather than from work. This alone could raise £12 billion a year.
-
Introduce a surcharge on investment income — interest, dividends, rents — while protecting modest savers. A 15% surcharge (with allowances) could bring in another £18 billion.
-
Reform pension tax relief, which disproportionately benefits high earners. Capping relief at the basic rate could raise £14.5 billion.
-
VAT on financial services, largely used by the wealthy, could add another £8.7 billion.
I also suggested reform of council tax that is a little more complicated. You can read about it here.
It has also been suggested that, while re-nationalisation of privatised assets can reduce long-run operating costs and restore future income streams to the public sector, they also typically require large up-front spending or legally complex negotiations (compensation to private owners, contract buyouts, etc.).
This is flapdoodle. Many of these firms have been run down or burdened with liabilities by their private bosses and shareholders – and this means they could be bought back at book value — effectively the original privatisation price minus the debts or mismanagement costs they have accumulated.
In some cases, this could even leave shareholders owing the state money.
Parliamentary and Treasury work on infrastructure frameworks shows the government is already reviewing public investment models, but these buybacks could be implemented without huge up-front spending or protracted negotiations, contrary to common assumptions.
There is no alternative
There is no alternative – and I use those words with particular meaning.
Margaret Thatcher used them to claim that privatisation of public utilities and services could not be avoided if the United Kingdom was to continue to prosper – and this was a black-hearted lie.
David Cameron and George Osborne used them to claim their austerity programme of the 2010s was necessary as well – and that was also a lie.
Now, there really is no alternative. Rachel Reeves has been painted into a corner – by those politicians who came before her, from Thatcher onwards, and by herself.
The solution I propose is the only answer that can make a positive difference, and therefore the only answer that makes any sense at all.
There is no alternative.
But Reeves has effectively ruled it out. She has boxed herself into rules designed to reassure financial markets, not to rebuild public capacity.
That means she has cut off the very route that could stabilise the public finances in the long run.
Watch now, as she tries anything else she can think of instead.
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Here’s how Reeves can beat the borrowing blues – and this time there really is no alternative
Share this post:
Government borrowing hit £20.2 billion in September, the highest for that month in five years, according to the Office for National Statistics.
It means the Chancellor of the Exchequer is under pressure ahead of the November Budget, as she struggles to meet her self-imposed fiscal rules.
Here‘s the BBC:
So borrowing rose despite higher tax receipts, because spending increased even more.
The government had to pay £9.7 billion in debt interest, up £3.8 billion on the same month last year, and inflation-linked pay rises and benefits have also increased the state’s running costs.
Reeves’s self-imposed fiscal rules require debt to be falling as a share of GDP within five years and day-to-day spending to be covered by government income.
Economists are warning that Reeves will need to find around £27 billion in next month’s Budget to stay within her rules – most of it through tax rises.
That’s likely to test both her fiscal and political credibility: if growth keeps stalling and borrowing stays high, she may soon face a choice between breaking her own rules or breaking her promises to voters.
And that is her current choice: raise taxes, cut spending, or break her own rules.
The real problem
The reason those “running costs” are rising is not just pay or inflation.
Here’s the full picture that the BBC isn’t giving you:
The ONS and most independent analysts point to three immediate contributors to the recent rise: (1) much higher debt interest payments as rates and outstanding debt rise; (2) higher day-to-day spending (pay settlements, inflation-indexed benefits and running costs); and (3) weaker-than-expected receipts in some tax categories.
“Day-to-day spending” includes every penny the government pays for day-to-day operations – and that means the vast sums spent on outsourcing, PFI contracts, and privatised utilities that successive governments sold off under the promise of efficiency.
That promise was false.
When national assets and services were sold off to the private sector, the state didn’t stop needing them — it just ended up paying rent to use what it used to own outright.
That rent comes in the form of:
PFI contracts (Private Finance Initiative deals) for hospitals, schools and infrastructure, which still cost billions every year;
Leases and outsourcing costs for offices, maintenance and public services that used to be handled in-house;
Energy, water and transport bills, all of which are higher because the companies running them are driven by profit, not public need.
So a large and growing chunk of what Reeves calls “public spending” is really private profit guaranteed by the taxpayer.
The more the government pays to the privateers, the higher the baseline cost of government becomes — before a single penny goes on nurses, teachers or benefits.
The truth is that the state is now renting back what it used to own – hospitals, schools, railways, water, energy, IT systems, maintenance and cleaning services – all at inflated prices that build in private profit.
For example, government data and parliamentary reports show PFIs remain on the books and that long-running contracts create guaranteed payments by the public sector over many years. That raises the baseline of recurrent public spending compared with when the state owned and directly operated those assets.
The National Audit Office has shown time and again that private finance deals end up costing the public 20–40 per cent more than direct public investment. Those deals haven’t gone away; they’re still draining the Treasury decades after the headlines faded.
Reeves’s fiscal rules don’t account for this structural damage. They make it look as though public services are unaffordable when, in reality, it is the privatisation model itself that is bleeding the public purse.
Higher running costs due to privatisation are now “baked in” to the public finances.
They inflate the baseline of current spending, which means Reeves’s fiscal rules — designed around hitting narrow borrowing targets — are harder to meet even if she freezes departmental budgets.
This is the trap: Reeves can’t get borrowing down without cutting services, because she’s paying private rent on the infrastructure those services rely on.
That leaves her reaching for tax rises on ordinary households, rather than questioning why so much of her budget is flowing to private finance.
The solution
The logical solution isn’t to squeeze working households harder with new taxes, but to recapture public wealth; to reclaim or rebuilt public ownership in key sectors, ending the contractual rents that funnel public money into private hands. That could mean:
Raising taxes on the richest individuals and corporations, targeting the people and corporations who gained most from the sell-offs and the financialisation that followed them in order to reverse the concentration of wealth caused by privatisation and financial deregulation;
Using those revenues to buy back or rebuild key public assets — energy, rail, water, housing — which would lower long-term costs and bring in steady income again;
Ending the dependence on private finance for public infrastructure.
That would not only make the public finances more sustainable but would also restore long-term stability to the economy, replacing private profit extraction with public value creation.
Oh, I know. “Wealth taxes never work.” We’re hearing a lot of that from bought-and-paid-for pundits on the national (especially right-wing) media.
They’re talking hogwash, of course. Significant sums can be raised, simply by taxing the profits of asset ownership effectively, as This Site has argued in the past. I suggested that a government could:
Equalise tax on capital gains with income tax. No more rewarding people for making money from money rather than from work. This alone could raise £12 billion a year.
Introduce a surcharge on investment income — interest, dividends, rents — while protecting modest savers. A 15% surcharge (with allowances) could bring in another £18 billion.
Reform pension tax relief, which disproportionately benefits high earners. Capping relief at the basic rate could raise £14.5 billion.
VAT on financial services, largely used by the wealthy, could add another £8.7 billion.
I also suggested reform of council tax that is a little more complicated. You can read about it here.
It has also been suggested that, while re-nationalisation of privatised assets can reduce long-run operating costs and restore future income streams to the public sector, they also typically require large up-front spending or legally complex negotiations (compensation to private owners, contract buyouts, etc.).
This is flapdoodle. Many of these firms have been run down or burdened with liabilities by their private bosses and shareholders – and this means they could be bought back at book value — effectively the original privatisation price minus the debts or mismanagement costs they have accumulated.
In some cases, this could even leave shareholders owing the state money.
Parliamentary and Treasury work on infrastructure frameworks shows the government is already reviewing public investment models, but these buybacks could be implemented without huge up-front spending or protracted negotiations, contrary to common assumptions.
There is no alternative
There is no alternative – and I use those words with particular meaning.
Margaret Thatcher used them to claim that privatisation of public utilities and services could not be avoided if the United Kingdom was to continue to prosper – and this was a black-hearted lie.
David Cameron and George Osborne used them to claim their austerity programme of the 2010s was necessary as well – and that was also a lie.
Now, there really is no alternative. Rachel Reeves has been painted into a corner – by those politicians who came before her, from Thatcher onwards, and by herself.
The solution I propose is the only answer that can make a positive difference, and therefore the only answer that makes any sense at all.
There is no alternative.
But Reeves has effectively ruled it out. She has boxed herself into rules designed to reassure financial markets, not to rebuild public capacity.
That means she has cut off the very route that could stabilise the public finances in the long run.
Watch now, as she tries anything else she can think of instead.
Support Vox Political!
With social media algorithms acting as gatekeepers – allowing users to read only what their owners want them to, sites like Vox Political need the support of our readers like never before.
You can help by making a donation:
https://Ko-fi.com/voxpolitical
Share this post:
Like this:
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