Click to Understand: The UK's Borrowing Dilemma and Its Impact on Taxpayers

The UK government faces a chronic budget deficit, generally spending more than it collects in tax revenue. To bridge this gap, it resorts to borrowing, which it must repay with interest. The primary sources of income for the government include income tax, National Insurance, VAT, and corporate taxes. When tax revenues fall short, the government may resort to either raising taxes, reducing spending, or borrowing to stimulate the economy, especially for major projects like new infrastructure.

Government borrowing is done through selling bonds, specifically gilts in the UK, which are regarded as safe investments. In October 2023, the government borrowed £17.4 billion, marking a drop from the previous year but still hitting one of the highest borrowing levels for that month since records began. Total borrowing for the fiscal year ending March 2025 is projected at £149.7 billion.

The national debt currently stands at around £2.6 trillion, equivalent to the UK’s GDP and significantly higher than levels seen before the 2008 financial crisis. While national debt has more than doubled since then, its ratio to the economy remains lower than historical averages and some other developed nations.

Rising interest rates pose a growing challenge, leading to higher interest payments on the national debt, which were £8.4 billion in October 2025. This situation raises concerns among economists about sustainable borrowing levels, with some arguing that excessive debt could hinder spending on public services.

The Labour government, under Chancellor Rachel Reeves, aims to maintain fiscal responsibility by adhering to rules that require reducing debt as a percentage of the economy over the next five years. Recent budget strategies include alterations to how debt is measured to allow for increased investment funding. There is a clear commitment from the government towards economic stability, as they navigate the balance between borrowing for growth and managing the national debt.