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
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
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.
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 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 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?