The coronavirus pandemic forced Britain’s government to borrow more than at any time since the second world war, the Office for National Statistics said as it published the first provisional estimates of the public finances for the 2020-21 financial year.
The UK borrowed £303.1bn in the year ending in March, an increase of £246.1bn on the previous year when borrowing was only £57.1bn.
Although historically large, the level of government borrowing was not as bad as had been feared. This prompted the Treasury to tell financial markets on Friday morning that it would issue £43.3bn less debt in 2021-22 than it had planned as recently as the Budget on March 3.
The lower than expected borrowing numbers did not diminish the scale of the deficit in 2020-21 as the economy reeled from the effects of coronavirus. Tax revenues fell while public spending on health services and furlough schemes surged.
The government borrowed 14.5 per cent of the value of everything produced in the UK economy last year, a figure that was last higher at the end of the second world war when it borrowed 15.2 per cent of gross domestic product.
The level of borrowing pushed the UK’s total accumulated public debt to 97.7 per cent of GDP, the highest level since the early 1960s.
According to Michal Stelmach, senior economist at KPMG, the “meteoric rise” in government borrowing and debt was necessary to shield the economy from greater harm if it had not put in place emergency support schemes.
“Doing otherwise could have created long-lasting scars which would be far worse for fiscal sustainability,” he said.
The borrowing estimate for 2020-21 will rise in the months ahead when the ONS includes estimates for the likely losses the government will suffer on its loan schemes to businesses.
Despite the borrowing figures reflecting a historic crisis for the economy, they were again better than feared as they have been since the summer of last year.
The ONS said the £303.1bn borrowing total for 2020-21 was lower than the Office for Budget Responsibility’s equivalent forecast of £327.4bn in the March Budget, also excluding expected losses on lending programmes.
Economists said the outlook for the public finances was significantly stronger because the economy was recovering rapidly and tax revenues had not been as hard hit as they feared during the pandemic.
Even with chancellor Rishi Sunak’s tax breaks for corporate investment this year to help the recovery, Paul Dales, chief UK economist at Capital Economics, said that borrowing was likely to “fall more quickly than most expect” in a strong recovery.
Isabel Stockton, research economist at the Institute for Fiscal Studies, sounded a note of caution, however. She said that getting the public finances back in shape by the middle of the decade would rely on the success of a swift recovery, big tax rises and very tight spending.
“There is a good chance that at least one of these will not happen,” she added.
The chancellor is expected to outline a new fiscal framework in the autumn. But Jagjit Chadha, director of the National Institute for Economic and Social Research, said on Friday that the Treasury was still wedded to a lack of transparency and accountability in the way the government set fiscal policy.
NIESR suggests the Office for Budget Responsibility should publish a report in the run-up to the event, setting out the main economic and fiscal forecasts if the government did nothing, highlighting any areas of concern.
He said this would allow for a better dialogue before a Budget in which the chancellor would respond, making it clear how he or she proposed to address these difficulties.
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2021-04-23 07:49:59Z
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