Public borrowing higher than expected in August
Government borrowing was higher than expected in August as interest payments on debt increased due to higher inflation.
Borrowing, which is the difference between tax revenue and expenditure, stood at £ 20.5bn, according to official figures, £ 5.5bn less than in August of the last year.
However, it was still the second highest figure for August since the records began.
Economists expected government borrowing to be around £ 15bn.
Borrowing has reached record levels as the government has spent billions on measures such as the holiday plan to support the economy.
This high spending, combined with less money going into the treasury due to the pandemic and a decline in economic output, pushed government debt to over £ 2.2 trillion, or around 97.6% of GDP – a level not seen since the early 1960s.
Interest payments on public debt stood at £ 6.3 billion in August. This was £ 2.9 billion more than in August 2020, but below the monthly record of £ 8.7 billion in June 2021.
Danni Hewson, financial analyst at AJ Bell, said: “Inflation is not only something that makes us wince when we get to the supermarket checkout, it is a drain on the public purse as well.
“The interest payments on all this debt that exploded in August and September will be even more painful.”
The government borrowed a total of £ 325.1 billion in the fiscal year ended March, representing 15.5% of GDP, the highest percentage since the end of World War II..
This figure represented an increase of £ 27.1 billion from the previous Office for National Statistics (ONS) estimate, which was largely due to the expected cost of £ 20.9 billion on guaranteed loans to businesses that will not be able to repay.
Isabel Stockton, a research economist at the Institute for Fiscal Studies, noted that this estimate suggested defaults would total just over a quarter of the £ 80 billion loaned.
“This is a significant number, but not as large as the Office for Budget Responsibility feared, whose 2021 budget estimate was that £ 27 billion would not be clawed back,” she said.
Ms Stockton added that for government spending figures, the precise size of last year’s peak borrowing “isn’t that important”.
“What matters most is the strength of the eventual recovery, if the current strength of tax revenues persists in the years to come and if the significant increases in income tax, corporate tax and the national insurance tax announced since March are actually implemented as planned. “
While borrowing this year comes in better than the OBR’s dismal forecast, it was still higher than expected in August, and the second highest on record.
It was the direct impact of rising inflation on borrowing costs that drove the numbers.
While the Chancellor is still heading for additional leeway ahead of next month’s budget and spending review, there is also leeway in revising last year’s borrowing figures.
The post-war borrowing record last year was significantly revised up to £ 325bn, due to more than £ 20bn in expected losses on Covid emergency loans backed by the government.
This is a large sum, about a quarter of these loans, reflecting the hidden extent of business distress. Although this figure is lower than some initial estimates of the write-offs.
The ongoing economic recovery will also help ensure that this number does not increase further.
Chancellor Rishi Sunak is due to present a new budget and growth forecasts on October 27, as well as new multi-year spending limits for different ministries.
Ruth Gregory, Senior UK Economist for Capital Economics, said: “With the Chancellor intending to signal in his budget on October 27 that the fiscal stimulus seen since the pandemic is now firmly over, the big fiscal boost to the ‘economy last year will soon become a fiscal drag. “
She said while tax revenue of £ 61.2bn was higher than the £ 55.8bn last August, government spending was “high” in August, including £ 1.1bn sterling on the leave scheme as well as £ 2.1 billion on the self-employed income support scheme. .
However, she added that the figures showed that “the government’s financial situation is not as bad as the Office for Budget Responsibility predicted in March.”