Rising Borrowing Costs: What They Could Mean for Your Business

The UK is entering a period of financial strain as government borrowing costs hit their highest point in over two decades. Long-term government bond yields – effectively the interest rate the government pays when it borrows – have risen to levels not seen since the late 1990s.

For the Treasury, this makes borrowing significantly more expensive and piles pressure on the Chancellor to look for ways to balance the books. For businesses, it raises the possibility of tax and spending decisions that could impact day-to-day operations in the months ahead.

Why borrowing costs matter

When governments need cash, they sell bonds to investors, promising repayment plus interest. The higher the yield (interest rate), the more expensive it becomes for the government to manage its debt. This leaves less money available for public spending or investment in growth.

The Chancellor has also committed to strict fiscal rules, including ensuring that everyday spending is covered by tax receipts rather than borrowing, and reducing government debt as a share of national income by 2029–30. With only a slim margin to work with, any unexpected rise in costs could force tough choices.

What’s driving the rise?

The UK isn’t alone in facing higher borrowing costs – similar increases have been seen across Europe and the US. Factors behind this include:

• Global trade pressures: Ongoing disruption to trade rules and tariffs is creating uncertainty.

• Investor concerns: Some investors appear cautious about UK government debt, meaning higher rates are needed to attract them.
  

Looking ahead to the Autumn Budget

Analysts suggest the government may need to raise an additional £18bn–£28bn in revenue at the Autumn Budget to stay within its own fiscal rules. This could increase the likelihood of new or adjusted taxes. Options under discussion include:

• Extending the freeze on income tax thresholds (the so-called “stealth tax”).

• Possible reforms to property taxes or stamp duty.

• Exploring National Insurance contributions for landlords.

  
  

While nothing is confirmed, businesses should be prepared for a Budget that brings significant changes.

What this could mean for your business

For business owners, these shifts may feel removed from daily operations, but the knock-on effects are very real:

• Tax changes: Adjustments to thresholds or rates could directly impact both business and personal finances.

• Financing costs: Higher government borrowing often translates into tighter lending conditions and higher costs for businesses seeking loans or investment.

• Planning uncertainty: Until the Budget is delivered, businesses face a more uncertain environment when forecasting costs and cash flow.

  
  

Preparing for what’s next

The safest approach for the coming months is to plan cautiously. Stress-testing your business finances against potential tax increases or higher borrowing costs could help ensure resilience.

The Autumn Budget will set the tone for government finances and business conditions alike.

At SJC, Chartered Accountants we’ll continue to monitor developments and keep our clients informed. If you’d like to review how upcoming changes might affect your business, our team is here to help.