UK government borrowing rose to the highest level on record in the first half of the fiscal year as the coronavirus pandemic continued to undermine the country’s public finances and tighter restrictions on businesses point to mounting debt in the months ahead.
In September, the government’s cash requirement was £25.2bn — £10.4bn more than in the same month last year and the highest level in any September since 2008, according to the Office for National Statistics.
The September figure pushed the cash requirement in the first six months of the fiscal year, which began in April 2020, to £246bn, nearly three times the highest first-half figure since records began in 1984.
Despite the sharp rise, government borrowing in the first half was lower than that forecast in July by the Office for Budget Responsibility, the fiscal watchdog, reflecting milder than expected falls in gross domestic product and tax receipts.
Rishi Sunak, chancellor, said that “whilst it’s clear that the coronavirus pandemic has had a significant impact on our public finances, things would have been far worse had we not acted in the way we did to protect millions of livelihoods”.
Rising infections and the imposition of tighter restrictions on socialising and the hospitality industry in many areas, including London, Wales and Greater Manchester, have damped hopes that the government’s extensive package to support the economy could be quickly scaled back. This has fuelled concerns over the UK’s mounting public debt.
In the first six months of the fiscal year, public net debt rose to 103.5 per cent of GDP — the highest level since 1960.
“The stuttering recovery and further fiscal support are likely to mean that the pace of borrowing is higher than the OBR expected in the second half of the fiscal year,” said Paul Dales, chief UK economist at Capital Economics, a consultancy.
“GDP looks set to effectively flatline over the next six months, not rebound as the OBR had assumed in its forecasts,” said Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics. In contrast, “expenditure will pick up if tier three restrictions are imposed in more regions, as hospitality businesses that are forced to close in these areas will be able to furlough staff with state support again”.
Prime Minister Boris Johnson is set to impose tighter coronavirus controls on Greater Manchester from Thursday night, after rising tensions over the size of the economic support for the area. Yael Selfin, chief economist at advisory firm KPMG UK, said that the latest figures “may add more tension between the need to respond to renewed Covid outbreaks and preserving the public purse”.
On a cash basis, central government receipts amounted to £247bn in the first six months — 21 per cent less than in the same period last year — with large falls in value added tax and corporation tax receipts.
Falling tax revenues not only reflect depressed activity but also the value added tax payment deferral introduced in March which enabled businesses to pay taxes due in the three months to June at a later date but before the end of March 2021.
The temporary VAT tax reduction for the hospitality sector introduced in July also contributed to falling tax receipts.
In contrast, the central government total cash outlays rose to £493bn in the first six months of the fiscal year, 45 per cent higher than over the same period last year. This includes £39.5bn for the coronavirus job retention scheme.
The ONS warned that estimates of public finances, such as public net debt, are subject to more uncertainty than usual as they are recorded on an accrued basis. Instead, the central government net cash requirement, the amount of cash needed immediately for the UK government to meet its obligations, is the “most timely information” on public finances and “less susceptible to revisions”, said the ONS.
Earlier in the month, the IMF forecast that public debt would rise sharply in 2020 across most economies with the UK expected to register the second lowest debt-to-GDP ratio among the G7 countries after Germany.
Source: Economy - ft.com
