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UK government borrowing drops by half but is still close to a record high

UK government borrowingChancellor_Rishi_Sunak, image: Wikicommons

The UK Government borrowed more in the last year than at almost any point since records began, even though the amount of tax money it collected rose.

Public sector borrowing rose to £151.8 billion in the year to March, the third-highest since 1947, but less than half the £317.6 billion borrowed in the previous 12 months, according to the Office for National Statistics (ONS).

The amount was higher than the £128 billion that the Office for Budget Responsibility (OBR) forecast just a month ago.

Chancellor Rishi Sunak said the economy and public finances were showing signs of improvement but the previous borrowing had left a legacy of debt.

“Public debt is at the highest levels since the 1960s and rising inflation is pushing up our debt interest costs, which mean we must manage public finances sustainably to avoid saddling future generations with further debt,” Sunak said.

Borrowing in March alone was £18.1bn – lower than had been predicted by the City – but still the second-highest since modern records began in 1947. Michal Stelmach, the senior economist at KPMG UK, said: “Having peaked at nearly 15% of GDP in the first year of the pandemic, borrowing is now estimated to have more than halved in the 2021-22 financial year.

Could a prolonged period of budget deficits lead to lower economic growth?

UK economist at the consultancy Capital Economics, Bethany Beckett, said there was likely to be a further fall in the deficit to around £100bn in 2022-23 even though the economy was now slowing. As a result, the chancellor would have scope to use his autumn budget to respond to the cost of living crisis.

“The outlook for borrowing naturally looks better in comparison to the pressures that pushed it up during the Covid-19 pandemic. In the last financial year alone, the government’s coronavirus job retention and the self-employment income support schemes together cost the taxpayer £17bn, while NHS test and trace added a further £16bn. These schemes have now been phased out,” said Michal Stelmach, a senior economist at KPMG UK in a report from The Guardian.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that the Treasury was unlikely to be anxious despite these higher-than-expected numbers.

“Early estimates of borrowing recently have been revised down significantly, as more data have been collated,” he said.

He added that the increased borrowing is not due to a weakened economy, but is based on government investment being higher in the ONS than the OBR figures.

“Estimates of investment often are revised considerably as government departments supply more accurate information,” Mr Tombs said, adding further: “Revisions to investment likely will be downward right now, given supply chain issues presently impeding construction projects.”

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