The UK Treasury has said it will need to take difficult decisions in next week’s budget after higher debt interest payments and pay awards for public sector workers pushed government borrowing to £16.6bn last month – the third highest September figure on record. In the last update on the state of the public finances before Rachel Reeves announces her tax and spending plans next week, the Office for National Statistics (ONS) said the UK’s budget deficit was £2.1bn higher last month than in the same month a year earlier. The City had been braced for a slightly higher deficit of £17.5bn, but the ONS said that only in the two Septembers affected by the pandemic in 2020 and 2021 had the government needed to borrow more. The chief secretary to the Treasury, Darren Jones, said: “We have inherited a £22bn black hole in the country’s public finances, including no plan to fund pay deals for millions of public sector workers. Strikes cost at least £3bn last year, so it was the right thing to do to end those damaging disputes. “Resolving this black hole at the budget next week will require difficult decisions to fix the foundations of our economy and begin delivering on the promise of change.” Alex Kerr, UK economist at Capital Economics said: “While it is too late for September’s disappointing public finances figures to influence the amount of headroom the Office for Budget Responsibility [OBR] will hand the chancellor in the budget on 30 October, they do highlight the limited scope the chancellor has to increase day-to-day spending without raising taxes. That said, if she tweaks her fiscal rules, she will still have room to raise public investment.” Last month’s deficit was £1.5bn higher than had been forecast by the OBR, the government’s spending watchdog. Taxes were £3.8bn higher than a year earlier, while spending was up by £5.9bn. The ONS’s deputy director for public sector finances, Jessica Barnaby, said: “Borrowing this month was about £2bn up on last year, making this the third highest September figure on record. “While tax revenue increased, this was outweighed by increased spending, partly due to higher debt interest and public sector pay rises.” The ONS said interest payments on the national debt in September were £5.6bn – up from £1bn a year earlier – but that this was because the September 2023 figure had been exceptionally low. In the first six months of the 2024-25 financial year, the UK borrowed £79.6bn, £1.2bn more than in the same period a year earlier.