UK public sector borrowing rose to a record high in the first eight months of the financial year as the pandemic continued to blight the government’s finances, resulting in falling revenue and soaring spending.
The government borrowed £284.7bn to cover the gap between its spending and revenue from April to November, according to the Office for National Statistics, three times the previous highest figure since comparable records began in 1984.
The UK’s public finances are expected to come under further pressure as the economy struggles with the new restrictions put in place to limit the spread of a new variant of coronavirus that has resulted in a surge in infections in south-east England.
Commenting on the figures, chancellor Rishi Sunak pointed to the government’s investment of £280bn to protect jobs and businesses during the pandemic which he said was “the right thing to do”. But he added: “When our economy recovers, it’s right that we take the necessary steps to put the public finances on a more sustainable footing.”
In his spending review on November 20, Mr Sunak said that the coronavirus pandemic would see government borrowing this year rise to a peacetime record of £394bn. He also announced cuts to overseas aid spending and a freeze in public sector pay increases as the first steps to reduce debt accumulation.
Tuesday’s public sector borrowing figure was augmented by a £23.9bn government net cash requirement in November, when economic activity was squeezed by a month-long lockdown in England.
As a result, public sector net debt at the end of November reached £2,099.8bn, similar to the size of the economy and the highest level since 1962.
Thomas Pugh, UK economist at the consultancy Capital Economics, said: “November’s surge in borrowing is unlikely to be reversed much over the next few months as the ongoing Covid-19 restrictions keep many businesses closed.”
While that would fuel talk of how to pay for the crisis, “the successful rollout of vaccines next year and a rapid rebound in gross domestic product could mean that the deficit returns to its pre-crisis level within the next few years without the need for much fiscal tightening,” he added.
A 42.2 per cent fall in value added tax receipts and a 29.8 per cent fall in receipts from corporation tax in the financial year to November, compared with the same period last year, contributed to the widening hole in the public finances. Over the same period, total government cash outlays increased by 38.5 per cent.
IMF data show that the annual increase in UK government expenditure as a proportion of GDP this year is higher than for any other large European economy.
The figures were released as the ONS revised economic output growth in the third quarter marginally higher to 16 per cent compared with the previous quarter, from an earlier estimate of 15.5 per cent. Despite that, the UK economy was 8.6 per cent smaller than in the same quarter last year, the largest contraction among the G7 countries.
UK economic growth was lifted by stronger than previously estimated household consumption, with higher spending on restaurants, hotels and transport. As a result, consumer spending in the third quarter was 9.8 per cent below its pre-lockdown levels, compared with the early estimate of 12.4 per cent.
As lockdowns eased and consumers returned to spending over the summer, their saving ratio dropped to 16.9 per cent in the third quarter from a record high of 27.4 per cent in the second quarter. However, this is still more than double the 6.2 per cent average of 2017-19, the ONS said.
Business investment growth was also revised up, but it remained one of the most depressed areas of the economy, at 19 per cent lower than at the end of 2019.
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2020-12-22 09:17:00Z
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