Himasha Dissanayake, JadeTimes Staff
H. Dissanayake is a jadetimes news reporter covering Economy
Source: CNN
UK government take borrowings to pay for everyday costs and infrastructure construction like the Elizabeth Line.
The UK government regularly spends more money on public services than it collects through taxation. To cover this gap, it borrows from financial markets, and like any borrower, it must repay these funds with interest. As the of borrowing grows, soscale does the cost of maintaining it, making government debt a central focus of economic policy.
Why the Government Borrows?
Much of the government’s income comes from taxes such as income tax, VAT, corporation tax and National Insurance. In most years, these revenues fall short of total spending, particularly during periods of economic slowdown or when major investment is required. Instead of sharply raising taxes or cutting essential services actions that can dampen growth the government often relies on borrowing to support economic activity, maintain spending on welfare, and invest in long-term infrastructure projects like railways and highways.
Borrowing can stimulate growth when the economy is weak, but continual reliance on debt ultimately increases future financial commitments. The challenge for policymakers lies in finding a balance that supports investment without compromising long-term public finances.
How the Government Borrows?
The UK borrows money primarily through the sale of government bonds, known as gilts. These are effectively IOUs promising to repay investors at a fixed date, along with periodic interest payments. Gilts are bought by pension funds, insurance companies, investment firms and foreign governments, among others. Because the UK has a long history of repayment, gilts are seen as low-risk, which helps the government attract investment at competitive interest rates.
Different bonds have different maturities and interest rates, allowing the government to borrow over short or long time periods depending on its needs.
How Much the Government Is Currently Borrowing?
The level of borrowing fluctuates throughout the year. For example, borrowing usually falls in January when many individuals make annual tax payments. According to the Office for National Statistics (ONS), the government borrowed £17.4 billion in October 2025, slightly lower than the same month a year earlier. Over the last full financial year ending March 2025, total borrowing reached £149.7 billion, and between April and October alone borrowing has already amounted to £116.8 billion.
These deficits accumulate as part of the national debt, which has now reached around £2.6 trillion—roughly equal to the value of all goods and services produced in the UK in a year (GDP). Although the current debt level is nearly twice what it was before the 2008 financial crisis, it remains lower than that of several other leading economies when measured against GDP.
Source: Office for National Statistics
The Cost of Servicing UK Debt
As total debt rises, so too do the interest payments required to service it. This became far more noticeable after the Bank of England began raising interest rates in 2021. In October 2025 alone, government interest payments amounted to £8.4 billion, diverting money away from frontline public services.
Source: ONS
Does Rising Borrowing Matter?
The debate over debt is split. Some economists argue that the cost of borrowing is increasing too quickly, placing pressure on public spending and limiting the government’s capacity to respond to future crises. Others maintain that borrowing for investment can stimulate long-term growth, increase productivity and ultimately generate higher tax revenues.
In response to growing concerns, the government has retained a fiscal rule requiring debt to fall as a share of GDP within five years. The October 2024 Budget revised how this measure is calculated, broadening it to include financial assets such as student loan repayments. This adjustment allows more scope for investment while still appearing to meet fiscal targets.
Debt vs Deficit: A Crucial Distinction
The terms “debt” and “deficit” are often confused. Debt refers to the total amount the government owes, accumulated over many years. The deficit represents the difference between government spending and revenue in a single year. When spending exceeds revenue, the deficit adds to the debt; when revenue exceeds spending, a surplus reduces it.
