The Budget’s £8.8 billion problem

I read the borrowing figures over coffee this week and had to check the number twice.

£8.8 billion.

That’s what the government paid just in interest on its debt in August, the highest August figure on record. Not on schools. Not on the NHS. Not on anything a taxpayer would recognise as a public service. Just the cost of servicing money already borrowed.

But this story actually gets worse. The country borrowed £18.3 billion in August alone, £3.5 billion more than the Office for Budget Responsibility had pencilled in, and £2.2 billion more overall than the same point last year even after some earlier good months. Debt is sitting just under £3 trillion. If you wanted a single chart to explain why Chancellor John Healey’s first Budget, due on 28 October, is being talked about in such grim terms, this is it.

Every pound the Treasury spends servicing debt is a pound it isn’t spending on anything you’d actually vote for. And every time borrowing overshoots, it puts more pressure on the Chancellor to find money somewhere else, which in practice means one of two places: spending cuts, or you.

Here’s where I think the coverage gets it slightly wrong. The instinctive read on a bad borrowing number is “taxes are going up,” and they probably are, in some form. But I don’t think the more interesting story is which tax rises. It’s what happens to people’s behaviour once they do.

I speak to a lot of small business owners and would-be investors through my work, and the thing that comes up again and again isn’t the headline rate of anything. It’s uncertainty. Somebody deciding whether to expand their business, take on a new hire, or move money into a pension doesn’t just look at this year’s tax rate. They look at whether the rules feel stable enough to plan three, five, ten years out. Every Budget that moves the goalposts, an allowance frozen here, a relief narrowed there, chips away at that confidence a little more, even when the headline rate hasn’t technically changed.

That’s actually the bit I’d watch most closely on 28 October. Freezing the income tax thresholds again, for instance, doesn’t touch the rate you see on your payslip, but it drags more of your income into higher bands as wages rise with inflation, a stealth tax by any other name. Reports suggest that’s more likely than an outright rate rise this time, alongside possible changes to dividend tax, pension salary sacrifice, and a squeeze on higher-value property. None of it will be announced as “we’re taxing you more.” Most of it will look technical, boring, easy to miss. It won’t be.

There’s a genuine bind here, and I don’t think it’s fair to pretend the Chancellor has an easy way out. Borrowing is running hot, debt interest is eating the budget alive, and the government has made big promises on housing, growth and living standards that all cost money. You can’t wish that away. But you also can’t tax your way to growth. If businesses and higher earners start responding to Budget uncertainty by sitting on their hands rather than investing, hiring or expanding, the growth the Treasury is banking on to make these numbers easier over time simply doesn’t turn up.

So my opinion, five weeks out, is this: watch the detail, not the headlines. The number that matters to you on Budget day probably won’t be the one that leads the news. It’ll be buried in a document about allowances and thresholds.

With borrowing this high going into the Budget, the most useful thing you can do isn’t to guess what’s coming and act on it; it’s to actually understand how you’re taxed right now, so you’re not caught off guard whatever gets announced. That’s exactly what I built our Tax Planning Hub for. Wherever you sit- salary, dividends, a pension you’re not sure is set up right, it walks through what applies to you and what to check before the 28th.

This article is for general information and education, and does not constitute financial advice. If you’d like to talk through how any of this might apply to your own situation, it’s worth speaking to a regulated financial adviser. We can help match you with a qualified IFA here.