At the same time, the UK government is currently wrestling with a debt burden of nearly £2.9 trillion. This figure is over two times the amounts documented since the 1980s up until the 2008 financial crash. This increasing borrowing leads to serious concerns about whether this level of debt is sustainable and the negative effects it has on our economy.
Soaring government borrowing
The most recent figures indicate that government borrowing shot up to £18 billion in August. This is an increase of £3.5 billion from the same month last year.
Chancellor Rachel Reeves has signalled a move away from the current government’s approach by changing the definition of the debt to measure it differently. This move opens the door to increased capital investment for next October’s 2024 Budget. It’s an acknowledgment of a smart, forward-looking strategy to address future economic storms. The government’s target is to lower overall debt as a share of the UK economy within five years. This strategy would be a departure from a fiscal rule established and adhered to by the last four administrations of both parties.
Interest rates are indeed a key factor in determining the cost of government debt. In the 2010s, interest rates were so low that borrowing had little financial cost. Interest payments on this debt have shot up ever since the Bank of England began increasing interest rates in late 2021. This growing cost has recently dawned on far too many. By August 2025, interest payments had jumped to £8.4 billion. That was a huge jump of £1.9 billion on 2021’s outturn.
Government bonds, or “gilts” as they are often called, are usually seen as risk-free investments with zero default risk. However, as debt continues to break record highs, anxiety over the long-term health of our economy remains. The UK government’s borrowing levels are now comparable to the gross domestic product (GDP) of the nation, underscoring a delicate balance between investment and fiscal responsibility.
Monthly borrowing is subject to large swings. Specifically, January is a month in which the government often borrows less because of the influx of annual tax payments. This means that in August 2020, public sector net borrowing excluding interventions was £24 billion. By the end of that financial year in March 2025, it had jumped to £146.3 billion.
In spite of these challenges, UK debt figures are at historic lows. Measured against the backdrop of the overall economy, they are actually quite a bit lower than much of the last century. Downing Street insisted there was no change to its rock solid, ironclad commitment to economic stability. This announcement is a positive and hopeful indicator of the government’s commitment to steer fiscal ships through these rough monetary waters.
Debates around fiscal policy are increasingly coming to a boil. Policymakers need to address our growing debt burden while fostering conditions needed for economic expansion. Smart investments are important in order to continue building investor confidence. Prudent fiscal management is a must for reassuring citizens.