Skip to content
Official data from the Office for National Statistics (ONS) shows that UK government borrowing rose to £20.2 billion in September, marking the highest level for that month in five years. The figures highlight the mounting fiscal challenges facing the Chancellor as preparations continue ahead of next month’s Budget.
Borrowing — which represents the shortfall between government expenditure and tax income — was £1.6 billion higher than in September last year. According to the ONS, while tax and National Insurance receipts increased, this was outweighed by higher public spending, particularly due to rising debt interest payments and inflation-linked costs.
Impact on the Upcoming Budget
The increase in borrowing leaves the Chancellor with less flexibility when delivering the November Budget. Debt interest costs alone totalled nearly £10 billion in September, reducing the scope for tax cuts or new spending initiatives.
These figures suggest the Chancellor will face a tougher task when outlining her Budget plans. The Office for Budget Responsibility (OBR) will release updated forecasts alongside the Budget, revealing how much “headroom” remains under the government’s own fiscal rules. Analysts anticipate that the Chancellor may need to raise taxes to stay within those limits.
Capital Economics estimates that as much as £27 billion could need to be raised, with households likely to bear much of that adjustment.
What Could Feature in the Budget
Chancellor Rachel Reeves has reiterated her commitment to the government’s manifesto pledges not to increase the main rates of income tax, VAT, or National Insurance.
However, she has also spoken about taking “targeted action” to help address the cost of living crisis. One possible measure being discussed is a reduction in the 5% VAT rate currently charged on household energy.
This implies that any tax increases introduced may be carefully structured to avoid the appearance of reducing people’s take-home pay.
Possible Areas for Tax Changes
Speculation continues over potential areas where additional revenue might be found, including:
• Freezing tax thresholds – effectively bringing more earners into higher tax bands and increasing overall tax receipts without changing rates.
• Adjusting National Insurance and income tax – for example, lowering the employee rate of National Insurance while increasing income tax by the same amount. This would have limited impact on employees but could raise more from pensioners, landlords, and the self-employed.
• Reforming property taxes – such as replacing stamp duty with a new property-based tax, or removing principal private residence relief, potentially increasing liabilities for landlords.
• Reducing tax relief on savings – limiting the benefits of ISA and pension tax reliefs, and lowering the tax-free lump sum available on retirement withdrawals.
Staying Prepared
As always, the period before a Budget brings plenty of uncertainty and speculation. The full details of any policy changes will only be confirmed when the Budget announcement is made.
We’ll be sharing updates after Budget Day to explain the key measures that could affect you. If you’d like tailored advice on your tax position, please don’t hesitate to contact us — our team will be happy to assist.
