UK Borrowing at Highest Since the War

The costs incurred by the government to support the economy during the coronavirus pandemic has pushed UK borrowing to the highest level since the end of World War Two.

Government borrowing is the difference between spending and tax income.

Last year’s recession plays a small part in the borrowing. But the main reason is the huge amount of additional spend to support the economy over the last year. Government finances have been hit hard during the pandemic by measures such as furlough payments.

According to the Office for National Statistics (ONS), the amount hit £303.1bn in the year to March. This is nearly £250bn higher compared to the year before. Over £200bn of this difference in borrowing between the two years comes from extra spending. The rest of it is from a reduction in taxes.

The high government borrowing is an extraordinary record, but at the same time also something of a relief. Only a few months ago, the government anticipated £400bn. Although the number will likely increase when some Covid support loans fail to be repaid.

The cost of Covid

In March, taxes were barely down on last year, but VAT, fuel duty and business rates were down. However, self assessment, PAYE, stamp duty and capital gains taxes were up.

Evidence suggests the economy is riding the second lockdown much more effectively than the first. This can be seen in the boost in retail sales figures.

Borrowing is predicted to continue at high levels this year, as income support continues until the autumn, and massive tax cuts are offered to companies. But a rebound in growth will most effectively reduce these record borrowing numbers.

Measures to support individuals and businesses during the pandemic contributed to a 27.5%, rise in central government day-to-day spending in the year. Meanwhile tax and National Insurance receipts fell by 5% compared to the last year.

Unfortunately, rising debt is a consequence of the government’s focus on shielding the economy as much as possible from the impact of Covid. However, if they had not done this, it would have created far worse long term consequences for fiscal sustainability.

Borrowing levels over the past year have now pushed public sector net debt to a rate not seen since the early 1960s. It is now up to £2.142 trillion, which is 97.7% of GDP.

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