U.K. Government Borrowing Surged During February Lockdown
(Bloomberg) -- U.K. government borrowing totaled 19.1 billion pounds ($26.6 billion) in February, reflecting the cost of supporting the economy through a third lockdown to fight the coronavirus.
The shortfall left the budget deficit for the first 11 months of the fiscal year at 278.8 billion pounds, almost six times the amount borrowed in the same period a year earlier, Office for National Statistics figures published Friday show. Net debt climbed to 97.5% of GDP, near the highest since the early 1960s.
The figures underscore the scale of the fiscal repair job facing Rishi Sunak following the deepest economic slump in three centuries. While the chancellor of the exchequer’s budget on March 3 set out hefty tax rises from 2023, many economists say more will be needed to deliver on his ambition of balancing day-to-day spending and revenue in the medium term.
The cost of seeing businesses and households through the crisis now stands at 344 billion pounds after further relief was announced in the budget. Billions more has been pledged in tax breaks to stimulate the recovery over the next two years.
The Office for Budget Responsibility predicts borrowing of 355 billion pounds in the current fiscal year, including 27.2 billion pounds of writeoffs of state-backed coronavirus loans that have yet to be incorporated into the ONS data.
That’s the equivalent of 16.9% of GDP -- the highest in peacetime history. The deficit in 2021-22 is forecast to be as high as it was after the financial crisis at more than 10%.
The current budget, which excludes investment, is projected to be barely in balance by the middle of the decade, despite the Treasury planning to hit companies and workers with the largest tax increase since 1993.
Research groups including the Institute for Fiscal Studies say those estimates are based on overly optimistic assumptions about future tax revenue and spending, meaning a further squeeze may be necessary to balance the books.
“We should look to return the public finances to a more sustainable path once the economy has recovered and at the budget I set out how we will begin to do just that, providing families and businesses with certainty,” Sunak said in a statement following today’s data.
The budget deficit in February was slightly lower than the 21.4 billion pounds forecast by economists, and there was a downward revision to borrowing in January.
Receipts were helped last month by inflows of income tax after the government extended the deadline for filing self-assessed returns for the 2019-20 tax year to Feb. 28 from Jan. 31. Self-assessed receipts jumped 26% on the year. Capital gains tax revenue also rose, partially offsetting declines in revenue from VAT, fuel duty and stamp duty on property purchases.
Spending in February surged 25%, boosted by pay subsidies for furloughed workers totaling 3.8 billion pounds. The combined cost of the furlough program and pay support for self employed workers now amounts to almost 77 billion pounds.
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