UK public borrowing falls despite fuel crisis and supply chain issues
Government borrowing fell at a faster than expected rate in September as the furlough scheme came to an end and tax receipts recovered strongly.
Figures published by the Office for National Statistics showed borrowing fell to £21.8bn last month from £28.8bn in the same month a year earlier, as Covid support measures were unwound. It was still the second-highest September borrowing since comparable records began in 1993.
Public sector borrowing for the first six months of the 2021-22 year fell to £108.1bn, down by £101.2bn in April-September 2020 but roughly triple its level before the pandemic, the ONS added.
City economists had expected a slightly higher level of borrowing of £22.6bn in September after the economy began to slow in response to severe shortages of petrol and raw materials that forced factories to cut production.
However, lower Whitehall spending helped the chancellor, Rishi Sunak, maintain a steady cut in borrowing that is likely to boost his spending power when he presents next week’s budget.
Tax revenues were especially strong after income tax receipts jumped 9.2% on the previous year and VAT by 4.5%. Overall government receipts were £62.3bn, £6.2bn more than in September 2020, while spending fell £1.3bn to £84.1bn.
Responding to the latest borrowing figures on Thursday, the chancellor said he planned to reduce borrowing in the next financial year to bring the government’s spending under control.
Sunak is expected to present fresh forecasts for the public finances that show borrowing this financial year to come in around £40bn below the most recent forecasts made in March thanks to faster economic growth.
He said: “At the budget and spending review next week I will set out how we will continue to support public services, businesses and jobs while keeping our public finances fit for the future.”
Speculation that Sunak will opt to recoup most of the savings to lower overall borrowing has circled around No11 since it became clear in the summer that borrowing this year and next will be lower than forecast by the OBR.
Increasing the funds to help workers retrain for jobs in the post-pandemic era is known to be among the chancellor’s priorities, but the relatively small sums he is likely to deploy will leave his overal debt reduction strategy in place.
Fears have grown inside Whitehall that a determination to limit borrowing will mean that most departments outside health and education will be forced to operate the next three years with frozen budgets once inflation is taken into account.
A comprehensive spending review to accompany the budget is also expected to hand local councils only small cash increases to cope with soaring social care bills and the cost of running services at a loss during the pandemic, forcing them to increase council tax bills by the maximum 5% next April.
Last month, Sunak announced a £12bn increase in national insurance, hitting workers and employers, starting next year, alongside a freeze on income tax thresholds. he said it would fund increases in social care spending, though from 2023. In addition, he plans to introduce higher rates of corporation tax from 2023.
Michal Stelmach, a senior economist at the consultancy KPMG, said the final month of furlough brought the overall cost of the scheme to £69bn, rising to nearly £100bn including spending on the self-employment income support scheme.
While the furlough scheme will no longer be a cost for the Treasury, he warned that other hurdles remained as the chancellor sought to stabilise the public finances.
“Ahead of next week’s budget, the chancellor faces a cocktail of slowing recovery, a vulnerable labour market and public debt at its highest level since the 1960s, while the recent lifting of restrictions on creditor actions could trigger a wave of corporate insolvencies.
Beyond some “small giveaways”, he said the budget will seek to curb any extra borrowing over the next three years.
“With rising inflation putting extra pressure on the cost of servicing government debt, the focus will now return to balancing the books,” he said.
The UK’s total borrowing continued to climb, standing at £2.2tn at the end of September 2021 or around 95.5% of gross domestic product (GDP), the highest ratio since the 98.3% recorded in March 1963.
Britain’s budget deficit soared last financial year to 15% of GDP – its highest since the second world war – but is expected to drop to just over half that this year due to the end of emergency economic support and stronger tax revenues.