The Treasury ran a higher than expected budget deficit of £۲۴.۵bn last month as rising inflation pushed up the interest paid on government debt, increasing pressure on John Healey before his budget next week.
Official figures show the government paid £۱۰.۹bn in debt interest: the highest September figure since records began, and only the eighth time the monthly number has been above £۱۰bn.
Some government bonds are directly linked to the retail prices index measure of inflation, with payments rising in line with it. RPI has increased in recent months as the Iran war has pushed up energy costs. The Office for National Statistics said this had added £۴bn to debt interest costs in September alone.
Total government debt is estimated to have hit £۳tn for the first time – although as a share of the size of the economy it has fallen to ۹۴%, from ۹۵% a year ago.
The £۲۴.۵bn monthly deficit on the public finances was up from £۱۷bn in August, and £۱.۹bn higher than the independent Office for Budget Responsibility had forecast.
In the financial year so far, public sector net borrowing is £۹۷.۸bn, the ONS said – £۴.۴bn lower than last year but still £۶bn higher than the OBR expected.
The data underlines the impact of the Iran war on the public finances, before the budget next Wednesday.
Healey has been keen to stress his determination to stay within the fiscal rules set out by his predecessor as chancellor, Rachel Reeves.
However, he is widely expected to accept a slimmer financial buffer, or “headroom”, against those rules than the £۲۴bn Reeves had built up at the time of her spring forecast.
Higher inflation tends to be good for tax revenues but it also squeezes how much government departments can achieve within fixed budgets.
Receipts from income-related taxes were up more than ۷% on the same month last year in September, and corporation tax by ۹%, aided by stronger than expected economic growth – but these higher receipts failed to offset the rising debt interest bill.
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Martin Beck, the chief economist at the consultancy WPI Strategy, said the latest data was “an unwelcome reminder of the pressures facing the chancellor ahead of next week’s budget”.
Healey is under pressure to provide relief from rapidly rising energy costs. Greg Thwaites, the interim chief economist at the Resolution Foundation, said the public finances figures suggested he would have to take a cautious approach.
“The support must be temporary and targeted given the state of the public finances. Borrowing is already off track this year, debt has hit £۳tn, and markets are closely scrutinising the government’s ability to keep on top of the public finances,” he said.
The Conservative shadow chancellor, Andrew Griffith, said the figures showed Labour should do more to tackle the deficit. “Government borrowing of more than £۳tn – the highest in history – and rising inflation show Labour has lost control of the economy,” he said.
