If the government has to set aside more cash for paying debts and interest, it may have less to spend on public services.
Some economists fear the government is borrowing too much, at too great a cost. Others argue extra borrowing helps the economy grow faster – generating more tax in the long run.
The amount of borrowing is also very important if the government wants to keep meeting its so-called “fiscal rules”.
When Labour came into power in 2024, it decided to stick to a pledge by the previous government that the total amount of money owed must have fallen as a proportion of the UK economy in five years’ time.
In the October 2024 Budget, the then Chancellor Rachel Reeves changed the definition of debt that the government would use in the target to enable her to raise more money for investment.
It now tracks a different, broader measure of debt called public sector net financial liabilities (PSNFL).
This includes, for example, the money the government gets from people repaying their student loans.
Under this measure, total debt was £2.7tn at the end of June 2026, the equivalent of 84.5% of GDP.
The Institute for Fiscal Studies (IFS) think tank has criticised Reeves for being “fixated” on the borrowing rules, which it says contribute to “dysfunctional policymaking”.
It wants the chancellor to be guided by a broader set of economic measures instead.
