UK gov’t borrowing falls in June as economy reopens

• Posted on July 21, 2021July 21, 2021
• by Nana Kwesi Coomson
• Comment

Government borrowing fell in June compared with the same month last year, with the economy in recovery mode after lockdown measures eased.

Borrowing – the difference between spending and tax income – was £22.8bn, official figures show, which was £5.5bn lower than June last year.

However, the figure was the second-highest for June since records began.

Borrowing has been hitting record levels, with billions being spent on measures such as furlough payments.

The huge amount of borrowing over the past year has now pushed government debt up to more than £2.2 trillion, or about 99.7% of GDP – a rate not seen since the early 1960s.

The Institute for Fiscal Studies (IFS) warned that the lower-than-expected borrowing seen in recent months was likely to prove only temporary, leaving Chancellor Rishi Sunak with “very little room for manoeuvre” in his forthcoming Spending Review. 

The Office of National Statistics (ONS) now estimates that the government borrowed a total of £297.7bn in the financial year to March. 

That was 14.2% of the UK’s GDP and the highest level since the end of World War Two.

The ONS said the cost of measures to support individuals and businesses during the pandemic meant that day-to-day spending by the government rose by £204.3bn to £942.7bn last year.

In response to the latest figures, the chancellor said he was “proud of the unprecedented package of support we put in place to protect jobs and help thousands of businesses survive the pandemic”.

He added: “However, it’s also right that we ensure debt remains under control in the medium term, and that’s why I made some tough choices at the last Budget to put the public finances on a sustainable path.” 

According to the IFS, those tough choices will persist, even though the economy is recovering more quickly than expected at the time of the Budget.

“We now forecast that borrowing in 2021-22 could come in some £30bn lower than the £234bn forecast in the March Budget,” the IFS said.

“But this near-term improvement in the outlook is not expected to persist.

“Permanent economic damage done by the pandemic and rising debt interest costs mean that, under our forecast, the chancellor has little, if any, additional headroom against his stated medium-term target of current budget balance (borrowing only to invest, not to fund day-to-day spending).”

That would leave Mr Sunak with virtually no additional room for permanent giveaways in this year’s Spending Review, the IFS added.

-BBC