Britain's Budget Gap: Why the Government Keeps Borrowing Billions

Ever wonder why a country like the UK—one of the world’s largest economies—still needs to borrow money? Shouldn’t all the taxes we pay be enough to cover everything the government does? Well, it’s not quite that simple. Let’s break down why the UK government borrows money, how it does it, what it means for the country’s future, and why you should care.

What Makes the Government Borrow in the First Place?

Taxes are the government’s main source of income. That includes income tax from workers, VAT from goods and services, national insurance contributions, and corporate taxes from businesses. In an ideal world, these taxes would cover all public spending—from healthcare and schools to building new railways.

But the reality is, government expenses often outweigh its income. So what happens when there’s a gap between how much money comes in and how much goes out?

Here are the main options:

Raise taxes
This might sound logical, but it’s not always practical. If taxes go up, people and businesses have less money to spend. That can slow down the economy, reduce business profits, and ironically, result in less tax income.
Cut spending
This means fewer public services or smaller budgets for things like transport, education, and welfare. That can be unpopular and affect quality of life.
Borrow money
This is often the middle path—keep things running without drastic cuts or sudden tax hikes.

So, governments often choose to borrow instead of making quick changes to tax or spending, especially when they need to boost the economy or fund long-term projects.

How the Government Borrows Money (And Who Lends It)

When the UK government needs to borrow money, it sells something called bonds, specifically UK government bonds known as gilts. Think of a bond as a promise: the government agrees to pay back the money later with interest.

What Are Gilts, Exactly?

Gilts are like IOUs. Investors—mainly big institutions like pension funds, banks, and insurance companies—buy these gilts. In return, the government pays them interest regularly and repays the original amount at the end of a set period.

There are two types:

Short-term gilts (usually a few months to a few years)
Long-term gilts (can be 10, 20, or even 30+ years)

These gilts are seen as safe investments because the UK government is very unlikely to default on its payments.

By selling gilts, the government raises cash now and repays it over time. This lets it fund major infrastructure projects, emergency spending, or simply cover a shortfall in the budget.

The Size of the UK’s Borrowing and Debt

Government borrowing changes throughout the year. For instance, in January, when people pay a lot of their annual taxes, borrowing usually drops. But let’s look at the bigger picture.

In the 2024-2025 financial year, the UK government borrowed about £151.9 billion. That was an increase from £131.2 billion the previous year.

All this borrowing adds up over time. That total is called the national debt—and right now, it’s around £2.8 trillion. That’s roughly the same size as the entire UK economy in a year.

This level of debt is more than double what it was in the 1980s and before the 2008 financial crisis. Two major events pushed the debt higher: the 2008 global crash and the Covid-19 pandemic, which led to emergency spending to support people and businesses.

Even though the total amount sounds massive, the UK’s debt is still relatively manageable compared to many other advanced economies.

Paying Interest: The Hidden Cost of Debt

Here’s the thing—debt doesn’t come free. Just like we pay interest on loans or credit cards, the government pays interest on what it borrows.

Back when interest rates were super low (through most of the 2010s), this wasn’t a huge burden. But when the Bank of England started raising interest rates in 2021, the cost of borrowing went up.

In March 2025 alone, the government paid £4.3 billion in interest. That’s a record-high amount for that month, even more than March 2024 or March 2023.

The higher the debt and the higher the interest rate, the more money the government has to set aside just to pay interest. That means less money for schools, hospitals, or police—unless taxes go up or more borrowing happens.

Should We Worry About All This Borrowing?

Opinions are divided.

Some economists argue that borrowing too much, especially at high interest rates, is risky. They worry that debt payments will eat up more and more of the budget, leaving less for public services.

Others say that borrowing now, especially to invest in the economy, can pay off in the long run. If it leads to economic growth, more jobs, and higher tax income, then the debt becomes easier to manage.

In early 2025, when borrowing costs spiked, some experts warned that the UK government might miss its own targets for reducing debt as a share of the economy.

To give itself a little breathing room, the Chancellor updated how debt is measured. Instead of just looking at total debt, the government will now also consider public sector net financial liabilities—a broader measure that includes things like student loan repayments coming back in.

The aim is to keep borrowing under control without choking off investment in important areas.

Debt vs. Deficit: What’s the Difference?

These two terms often get mixed up, but they mean different things.

Debt is the total amount the government owes—built up over many years.
Deficit is the difference between what the government spends and what it earns in a single year.

If the government spends more than it brings in, it has a deficit. If it spends less, it has a surplus.

When there’s a deficit, the government borrows more, and the debt grows. When there’s a surplus, the debt can actually go down.

Final Thoughts: Why Government Borrowing Affects Us All

Government borrowing might sound like an issue only economists and politicians worry about—but it trickles down to all of us.

Higher debt and rising interest payments can impact everything from the quality of public services to the amount of tax we pay. It can affect job growth, wages, and even what support is available in times of crisis.

At the same time, smart borrowing can drive long-term growth and help build the kind of country we all want to live in—one with good roads, schools, healthcare, and opportunities.

So next time you hear news about government borrowing or national debt, remember—it’s not just about numbers. It’s about choices, priorities, and the future we’re all part of.