The Guardian published this at 7.20 this morning:
Newsflash: UK government borrowing has hit its highest level since the Covid-19 pandemic in the first half of this tax year, eating into chancellor Rachel Reeves's headroom.
The Office for National Statistics has reported that the government has borrowed £99.8bn so far this finanical year – which is £11.5bn more than in April-September 2024.
That's the second-highest April to September borrowing since monthly records began in 1993, after that of 2020.
The problem for Reeves is that this is £7.2bn more than the £92.6bn forecast by the Office for Budget Responsibility back in March. That shortfall creates pressure on the chancellor to raise taxes or cut spending to keep within her fiscal rules (to have debt falling in five years time).
Note the breathlessness, the air of panic and the sense of impending doom. I saw one email in my inbox this morning responding to this news, claiming that the UK government was about to be "repossessed" as a result of its supposed borrowing. And all of this is nonsense, of course.
There are three things to consider. For background, look at my new glossary entry on bonds, and my suggestion in a video this morning that the last thing we need right now is a tax rise on anyone but the wealthy.
Then appreciate, firstly, that if the government "borrowed" a near record amount, it did no such thing. Financial institutions placed a near record amount on deposit with the government, lapping up all the bonds it had to offer in the process. There is no borrowing crisis in the UK. There is just a lot of saving going on as people are not spending, a fact which is confirmed by ONS data showing that the savings ratio is rising as people are worried about the future.
Secondly, there is more saving because the government is not taxing back all it spends, and for it to do so would make no sense, unless all the additional tax was to come from the wealthy, as I have argued this morning.
Thirdly, the real interest cost on bonds at present is about 1% over inflation. I would like inflation, and interest rates, to fall, but let's be clear that this means that the cost of bonds being issued is entirely manageable when, given their likely duration, a considerable part of the cost of their so-called redemption on maturity (when they will almost certainly in practice be rolled over into new bonds) will have been eroded by inflation, with minimal real funding cost when inflation is allowed for in the meantime.
So, what is the panic all about? There is no reason for any sort of panic at all.
But let's also address the claim of those who suggest the UK government is about to be "repossessed". This is just crass stupidity. Bonds are owned by banks that need them, pension funds and life assurance companies, whose business models depend on them, and foreign governments and banks that want to hold sterling, and this is the only safe way for them to do so. None of them has the slightest incentive to undermine the capacity of the UK government to issue or honour its debt, as they all want to own it.
Such talk is, then, utter drivel, unworthy of being published by anyone. But do expect it to arrive somewhere in the commentary today. Idiots are inclined to repeat nonsense, and a lot of nonsense is going to be said about birds today.
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It’s impossible to claim you’re a grown-up if you can’t provide a coherent explanation how the UK monetary system works. The Guardian never has!
Typo: “undermine” the capacity of the UK government to issue or honour its debt?
Thanks. Corrected.
I wonder if you having a FAQ about government borrowing might be a good idea. I can’t always find the exact post of yours where I learned certain things about government borrowing. I know it’s a lot of work, but it would probably help some people. I don’t remember the mechanisms of QE nor of how the government spends on a daily basis (is it Ways and Means or some other method?). Yields on long UK government bonds have fallen from 5.6% to 5.2% in the last few weeks: a little worse for me as I’m intending using them instead of annuity in a couple of years time, but is there some advantage in lower yields?
I will work on it. Seriously – good idea
Being quite old, I also have similar problems to those described by Mark Gresham. I haven’t needed the FAQ that he suggests. I have simply asked ChatGPT, mentioning Richard by name, and I find it seems to know his work quite thoroughly. It has given me a couple of very clear answers recently, with as much corroboration from Richard’s writings as I ask for.
One slight caveat; my IT savvy son who has worked extensively with various LLMs of late, tells me that the AI models he has been using tend to want to flatter the user and agree with him/her wherever possible. I do tend to be argumentative myself but since hearing my son say this I must say I can indeed detect, very slightly, the tendency he points to.
Anyway, I thought mentioning this might just relieve Richard of one more urgent job in his in-tray. If I feel doubtful about any particular detail provided by ChatGPT, I go over to Perplexity for confirmation and it – quite helpfully – always quotes sources for its answers.
I’d be interested to know if others on here do similar things with AI. Richard appears to exploit it to an amazing extent in the course of his working day.
Thank you
The Perplexity idea is a good one.
I use AI extensively. They need training in the way one thinks and expectations on responses. I use ChatGPT, Perplexity, Google AI Mode, Claude. Different ones for different purposes. ChatGPT will quote sources if you train it to provide sources. While ChatGPT in particularly ingratiating, it doesn’t do so in core safety areas such as health, terrorism etc. But bias will creep in on contentious issues unless AI is challenged, one will get the principally mainstream view.
Agreed
The Guardian piece raises two questions:
1. What happened before 1993 when the records were introduced?
2. What happened before ‘fiscal rules’ were introduced?
From my perspective, no economics journalist seems remotely interested in actually exploring the background to these stories/press releases.
Agreed
It’s only monthly records of borrowing that started in 1993. Quarterly records had been maintained for many decades prior to that. So I imagine politicians etc only got agitated quarterly rather than monthly in those days!
Maybe you should send a link to yesterday’s video to the Guardian.
Craig
Exactly.
Nobody (nor institution) buys bonds because they think a country is failing. The UK is on a par with the USA and EU with an AA rating.
And if the UK uses the increase in sold bonds to fund job creation, it’s a very astute move.
Of course that won’t happen under Toryboy Starmer, but what is done with borrowing rather than the rate of borrowing should be the headline news.
And how has the gilt market reacted to this “shock, horror” headline? Nothing, absolutely nothing.
Precisely. It is relaxed about it.
Two possible factors explaining the lack of market reaction are:
1. The overshoot was relative to the OBR’s forecast in march. The markets likely had their own more up to date estimates, factoring in adverse developments since march.
2. There will be tax rises of non-trivial scale in the budget.
But there was no serious market reaction.
Everything else is an excuse.
I can’t reply to The Prof’s comment from 716pm last night, but just to clarify, I’m wholeheartedly in agreement that there was no “shock horror” reaction yesterday to the news re borrowing.
Where I likely differ from conventional opinion here is that the lack of reaction is due to the news being no surprise to the markets. September’s borrowing was slightly lower than the consensus expectations immediately before the data were released, and obviously actual borrowing data since the OBR’s March forecast have long been in the public domain.
The “shock horror” reaction was over the summer when Labour’s backbenchers forced a retreat from restraint being applied to disability benefit payments, as it signalled to the markets that the government was incapable of making hard decisions about public spending. Recent rhetoric from Reeves suggests that some semi-difficult decisions are going to be made re tax in the upcoming budget, which has restored some limited credibility for the government, and gilt yields in the secondary market have dropped a little since their mid-summer peak.
Though 5+ year gilt yields are still considerably higher than those on government bonds issued by the US and the Eurozone countries (e.g. 1% higher than France; 2% higher than German at the 10 yr point), which tells an interesting story for those who want to read it.
Don’t have enough headroom? Buy a bigger car. Get out the checkbook, grab a pen and start signing.
I think we’re heading into the esoteric here
Chequebook?
Wot’s one of those?
😉
I have one. I haven’t used it for years.
I live in Ireland and I still use a check book mainly just to mess with my bank. Their customer service is terrible. You are only allowed to go to a real bank if you are a running a commercial business.
I would like to hear these commentators wringing their hands about the explosion in government debt to explain why a bank increasing the amount of savings from investors is good, but that a government doing the same is bad? Can they tell me how much savings and term deposits with banks increased over the same period? Will that not just be a curse for future generations of shareholders?
But then investments held by private sector are good, and those held by the government sector are bad I assume?
And when did the government ever repay these so called debts without rolling them over at the end of the term?
Quite so
The point about bank deposits is great – I’ve not seen it expressed in these terms before and didn’t have the gumption to figure it out for myself.
Having worked in banking and financial services my whole working life, I’m very conscious of how important bank deposits are considered in the sector. Even better if they have a longer redemption date!
My goodness, the UK Government’s ability to attract very long-dated deposits makes it one of the most stable institutions on the planet (we knew this already of course, and despite some fudging at the margins, so did the ratings agencies).
Next time anyone bitches about the national debt I’ll try to remember to compare it to people’s willingness to put their savings in Barclays, etc. And the irony doesn’t escape me that for some wealthy people £85k is the most they’ll put in one bank. And why is that
The rich and their pliant think tanks, journalists and commentators will use this as stick to beat the poor.
Sadly no grown-ups to be found at either end of this stick!
I would like to say that I understood everything you wrote but I didn’t but I did enjoy reading it and the replys.
What should I have done better?
What could I do better?
Every day I have to listen to various journalists/radio presenters/guest experts talking about economic matters. Some I forgive because they lack knowledge, but many are professionals. All of them, without exception, refer to the household analogy/maxed-out credit card/ going bankrupt view of the economy. From this, I assume until I hear different, that they all believe it. I am comforted by the fact that I know for certain that they are wrong and the truth will dawn on them. Soon, I hope.
I hope so too.
Unbelievable really The Guardian publishes the following but still can’t join up the dots and continues to publish a false narrative about how the UK monetary system works:-
https://www.theguardian.com/world/2025/oct/21/welfare-cuts-have-fuelled-rise-of-far-right-and-populism-top-un-expert-says
In a decently educated and fair-minded society would this not be regarded as sedition for promoting falsehoods?
The answer occured to me when I heard somebody say yet again today, we have to find the money to do what needs to be done: ‘No! We’re the bankers here because we own the country and its bank, we’re not customers. Start thinking like you’re the banker and put our money where it gets a good return doing those things we need. ‘
That”# right.
Shouldn’t ‘borrowing’ be rephrased as ‘investment’? Deposits is accounting speak which will lose most people. While investment accentuates a positive outcome where the Government is in control rather than the markets.
It is saving
The trouble with this view of govt borrowing is no one seems to buy it who is in a position of power or influence.
I believe the view expressed by Richard is correct yet this view is hardly ever aired and discussed in mainstream media by politicians, economists or airheads oops sorry commentators.
Is this situation a vast conspiracy or are we another deluded minority arguing against orthodox thinking?
I think Steve Keen is probably right. Econ courses given at Unis propagate the orthodox views and until university text book writers make changes we are really up against it.
Watching how some trade unionists are dealt with on panels and the recent Green leader interview with Victoria Derbyshire the mainstream will simply not give support to views they regard as threatening.
Saying govt bonds are a form of saving is extremely threatening to Westminster and the City.
I am happy to threaten them.
It’s important to make a distinction between what people in power know about and could do and what they are prepared to acknowledge in public. As all sorts of people can turn up in and around elected governments there may be some naive and/ or ignorant types in high places who are victims of econ 101 textbooks shortcomings. But Treasury and Central Bank vets know perfectly well what can be done. If they don’t want to advertise or even acknowledge that it’s a political problem not an economic one, because they want to maintain the myth that Governments are beholden to bond markets and wealth holders generally. Either because of personal vested interest or because they believe it’s the foundation to ‘liberal democracy,’ a pretend constraint on state power which is actually a constraint on that power being used in the interest of working people. In the end it’s popular sovereignty versus wealth holder solidarity across frontiers.
Are you concerned about the amount of money being paid in interest?
On commonslibrary it says this was £107b in 2023/24, which was 8.7% of government spending and almost as much as the entire deficit (£131bn). This seems like a lot to me, but I am no expert.
Is there a risk that this interest payment and government debt increases year on year and gets out of control?
Where do you think the money goes?
Why does it worry you that a quaryer goes straight back to the governmnt?
And maybe a quarter to pension funds?
And some to life assurance companies?
And so on.
What do you think happens if these saveers are not paid?
Serious question – I can’t answer your question unless you can answer these questions. Who do you want to go unpaid?
I wasn’t suggesting that these bond holders (who I thought would be mostly wealthy people or institutions) should not be paid interest (although I’m still trying to get my head around the idea of the govt paying itself interest), I was just interested to hear from you if you think there are any limits to any of this?
Is it ok for 10, 15, 20% of government spending to be on debt interest? Can we just keep borrowing more and more to cover that interest payment?
We need a money supply.
The national debt supplies it. That is one of its roles.
Would you rather we went without it?
And if we want to cut the price – we can bring rates down. Thye Bank of England has inflated them. It could deflate them. You are worrying about all the wrong things.
And we don;’t borrow – we accept deposits. Please don’t keep asking questions I have answered many times.
Thank you for this post. Very interesting approaching MMT from the perspective of bonds. I particularly liked the practice of bond issuance as an additional means of controlling money supply along with taxation. This use of bonds in this way provides a more agile/ responsive method of taking money from the economy than taxation.