UK National Debt

Government Borrowed £5 Billion More than Expected in August

Government borrowing last month came in £5 billion higher than was expected and was the second highest figure for August on record, pushing the national debt up to £2.2 trillion. The Times has the story.

Public sector net borrowing was £20.5 billion in August, down £5.5 billion on last year, the Office for National Statistics said, but above the £15.6 billion that economists had expected. …

At 97.6% of GDP, the debt is now at its highest since March 1963.

A sharper fall in borrowing had been expected as the economy opened up, more workers came off furlough and tax receipts recovered. Rising inflation ended those hopes, as debt interest payments increased by £2.9 billion to £6.3 billion, the highest ever for August.

For the first five months of the year, debt servicing costs rose by a total of £10.7 billion to £27.6 billion and the ONS warned that worse was to come. “The recent high levels in debt interest payments are largely a result of movements in the retail prices index to which index-linked gilts are pegged,” it said.

RPI inflation jumped in August to 4.8%, a decade high, but the monthly debt servicing cost was based on the average of RPI between May and June, when it was lower. Economists expect RPI to reach about 5.5% by the end of the year.

Samuel Tombs, U.K. economist at Pantheon Macroeconomics, said debt interest costs are likely to be £13.5 billion higher than the Office for Budget Responsibility, the Government’s fiscal watchdog, predicted in March.

Despite the sharp rise in debt servicing costs, the public finances were stronger for the first five months of the year than the OBR forecast at the March budget. For the financial year-to-date, borrowing was £93.8 billion, £31.8 billion below forecast.

The better-than-expected receipts reflect stronger income tax, VAT and corporation tax revenues and a big reduction in pandemic support schemes. Furlough and self-employed support cost £4.5 billion in August, compared with the same month the previous year, and £34 billion less in the year to date.

The OBR will update its projections on October 27th, when the Chancellor will set out his departmental spending plans and unveil new budget measures. The fiscal watchdog is likely to reduce its £234 billion forecast for borrowing for the year to March 2022.

Worth reading in full.

Government Borrowing in July the Second Highest for That Month on Record

“Government borrowing shrinks in July,” reads today’s headlines – but the figure is still the second-highest for July since records began. Borrowing over the past year of lockdowns has pushed the national debt up to more than £2.2 trillion (about 98.8% of GDP).

BBC News has the story.

Borrowing – the difference between spending and tax income – was £10.4 billion, official figures show, which was £10.1 billion lower than July last year.

However, the figure was the second-highest for July since records began.

Borrowing has been hitting record levels, with billions being spent on measures such as furlough payments. …

The Office for National Statistics (ONS) now estimates that the Government borrowed a total of £298 billion in the financial year to March.

That amounted to 14.2% of GDP, the highest level since the end of World War Two.

The ONS said the cost of measures to support individuals and businesses during the pandemic meant that day-to-day spending by the Government rose by £204.3 billion to £942.7 billion last year.

Interest payments on central Government debt were £3.4 billion in July.

That was £1.1 billion more than in July 2020, but far lower than the monthly record of £8.7 billion in June 2021.

Worth reading in full.

“Big Risk” of Inflation Spiralling Out of Control as Government Borrows Another £24 Billion in May

Government borrowing came in lower than estimated in May, but there is little else in the state of the country’s economy to be cheery about. Following more than a year of lockdowns and heavy borrowing, the national debt stands at £2.2 trillion and a former Chancellor has warned there is a big risk of inflation spiralling out of control. The MailOnline has the story.

The Government was in the red by £24.3 billion last month, down from £43.8 billion a year earlier at the height of the pandemic – and crucially below the Office for Budget Responsibility’s forecasts.

However, the figure was still the second highest on record for the month and £18.9 billion more than in May 2019 before the pandemic struck, while national debt now stands at a staggering £2.2 trillion.

The grim fiscal backdrop was highlighted as former Chancellor Ken Clarke warned that there is a “big risk” of inflation running out of control – and urged Mr Sunak to raise more revenue now to make the Government less vulnerable to a resulting spike in interest payments.  

Responding to the figures, Mr Sunak reiterated his pledge to “get the public finances on a sustainable footing”.

“That’s why at the Budget in March I set out the difficult but necessary steps we are taking to keep debt under control in the years to come,” he added.

Concerns over the rebounding economy overheating and causing an inflation spike have been intensifying after the headline rate surged ahead of expectations to hit 2.1% last month.

Graphic from the MailOnline.

In the U.S. it is also at worryingly high levels, as Joe Biden pours money into stimulating the economy. 

Mr Sunak has been wrestling with Boris Johnson over how to fund ambitious “levelling up” spending commitments and a new social care plan.

Downing Street has insisted that the “triple lock” on the state pension will stay in place, even though the warping effects of furlough could mean it rises by 6% this year.  

Number 10 also says the manifesto commitment not to raise income tax, national insurance or VAT in this parliament stands – even though the respected IFS think-tank says that makes it “extremely difficult” for the Chancellor to find ways of raising money.    

Worth reading in full.

Government Borrowed £19 Billion in February, Pushing National Debt Up to £2.13 Trillion

The Government borrowed £19.1 billion in February, the highest since comparable records began in 1993. Serious measures are needed to flatten the UK’s growing mountain of debt, but the Government hopes to stop short of introducing another period of “austerity”. The Mail has the story.

Rishi Sunak renewed his vow to balance the books today as the Government broke another borrowing record.

The £19.1 billion figure for last month was the highest February figure since comparable records began in 1993. 

It means that net debt has risen by £333 billion since coronavirus chaos kicked in last April, with the UK’s debt mountain reaching £2.131 trillion – equivalent to 97.5% of GDP.

Responding to the ONS figures, the Chancellor said: “Coronavirus has caused one of the largest economic shocks this country has ever faced, which is why we responded with our £352 billion package of support to protect lives and livelihoods.

“This was the fiscally responsible thing to do and the best way to support the public finances in the medium-term.

“But I have always said that we should look to return the public finances to a more sustainable path once the economy has recovered and at the Budget I set out how we will begin to do just that, providing families and businesses with certainty.” …

Rather than go ahead with another period of “austerity” – which Boris Johnson has already ruled out – it is more likely that tax rises and borrowing would increase instead to make up the shortfall, the Institute for Fiscal Studies has said.

The UK’s tax burden is already set to hit the highest level since the 1960s as Mr Sunak raises billions by dragging more people into higher income tax rates and increasing rates for businesses.

The relationship between the stringency of lockdowns and the level of economic suffering is well established, as is highlighted here.

Worth reading in full.