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UK borrowing at record high as virus cost soars in April UK borrowing at record high as virus cost soars in April
(32 minutes later)
Government borrowing surged to £62bn in April, the highest monthly figure on record, after heavy spending to ease the coronavirus crisis.Government borrowing surged to £62bn in April, the highest monthly figure on record, after heavy spending to ease the coronavirus crisis.
It means the deficit - the difference between spending and tax income - was larger last month than forecast for the whole year at the time of the Budget.It means the deficit - the difference between spending and tax income - was larger last month than forecast for the whole year at the time of the Budget.
The data from the Office for National Statisticsrevealed the soaring cost of support, such as furlough schemes. The data from the Office for National Statistics revealed the soaring cost of support, such as furlough schemes.
But Chancellor Rishi Sunak said things would be worse without government aid.But Chancellor Rishi Sunak said things would be worse without government aid.
The government's independent forecaster, the Office for Budget Responsibility (OBR), has predicted that borrowing for the whole year could reach £298bn, more than five times the estimate at the time of the March Budget The government's independent forecaster, the Office for Budget Responsibility (OBR), has predicted that borrowing for the whole year could reach £298bn, more than five times the estimate at the time of the March Budget.
Jonathan Athow, deputy national statistician at the Office for National Statistics (ONS), described April's figure as "pretty much unprecedented". It said the cost of furlough schemes alone was £14bn in April. Jonathan Athow, deputy national statistician at the ONS, described April's figure as "pretty much unprecedented". It said the cost of furlough schemes alone was £14bn in April.
Mr Athow told the BBC: "Borrowing now is about six times what it was [in April] last year, so we are talking about some really significant changes in the government finances." "Borrowing now is about six times what it was [in April] last year, so we are talking about some really significant changes in the government finances," Mr Athow told the BBC.
Mr Athow said it was impossible to forecast the current year's public finances because of the "high amounts of uncertainty". Tax receipts have fallen heavily, with the government deferring some payments, while Treasury income from VAT and air passenger duty are down significantly. He added it was impossible to forecast the current year's public finances because of the "high amounts of uncertainty". Tax receipts have fallen heavily, with the government deferring some payments, while Treasury income from VAT and air passenger duty are down significantly.
How do public finances work?
Meanwhile, borrowing by the state in March 2020 has been revised up by £11.7bn to £14.7bn, the ONS said.Meanwhile, borrowing by the state in March 2020 has been revised up by £11.7bn to £14.7bn, the ONS said.
It said this was driven by a reduction in previous estimates of tax receipts and National Insurance contributions.It said this was driven by a reduction in previous estimates of tax receipts and National Insurance contributions.
The surge in borrowing comes after Chancellor Rishi Sunak stepped up financial support for businesses and employees after vast areas of the economy were forced to halt due to the coronavirus lockdown.The surge in borrowing comes after Chancellor Rishi Sunak stepped up financial support for businesses and employees after vast areas of the economy were forced to halt due to the coronavirus lockdown.
After publication of the figures, he said that if the government had not provided financial support, the cost to the economy and people's livelihoods would be much worse. After publication of the figures, Mr Sunak said that if the government had not provided financial support, the cost to the economy and people's livelihoods would be much worse.
"Our top priority is to support people, jobs and businesses through this crisis and ensure our economic recovery is as strong and as swift as possible," he said."Our top priority is to support people, jobs and businesses through this crisis and ensure our economic recovery is as strong and as swift as possible," he said.
"That's why we've taken unprecedented steps to provide lifelines to people and businesses with our furlough scheme, grants, loans and tax cuts.""That's why we've taken unprecedented steps to provide lifelines to people and businesses with our furlough scheme, grants, loans and tax cuts."
Buy now - worry later?Buy now - worry later?
For the last decade, the government had been trying to practise strict financial housekeeping, aiming for position where it could cover day-to-day spending with the money form our taxes and eliminate the deficit. For the past decade, the government had been trying to practise strict financial housekeeping, aiming for position where it could cover day-to-day spending with the money form our taxes and eliminate the deficit.
But then the crisis hit - and as the chancellor claims, the schemes put in place have provided a lifeline to tide millions over, to prevent an even bigger economic disaster. It was worth ripping up the rulebook for, he said.But then the crisis hit - and as the chancellor claims, the schemes put in place have provided a lifeline to tide millions over, to prevent an even bigger economic disaster. It was worth ripping up the rulebook for, he said.
However the bills are mounting, just as the amount received from taxpayers slumped.However the bills are mounting, just as the amount received from taxpayers slumped.
This year's deficit could be the equivalent of the biggest slice of our income since the Second World War - and that hole needs pluggingThis year's deficit could be the equivalent of the biggest slice of our income since the Second World War - and that hole needs plugging
For the moment, the government has increased its borrowing on financial markets, through bonds, effectively IOUs - but there is a limit to how much it can do so.For the moment, the government has increased its borrowing on financial markets, through bonds, effectively IOUs - but there is a limit to how much it can do so.
Ultimately, economists say taxes will have to rise, or spending cut - the emergency raft will have a price tag which we can't escapeUltimately, economists say taxes will have to rise, or spending cut - the emergency raft will have a price tag which we can't escape
But the chancellor will have to impose those carefully to avoid jeopardising a recovery. And if he opts for tax hikes, he'll risk breaking some election promisesBut the chancellor will have to impose those carefully to avoid jeopardising a recovery. And if he opts for tax hikes, he'll risk breaking some election promises
'All poorer''All poorer'
The scale of the economic consequences was underlined on Friday in separate retail sales data from the ONS. These showed that High Street sales crashed last month as shops closed for the lockdown.The scale of the economic consequences was underlined on Friday in separate retail sales data from the ONS. These showed that High Street sales crashed last month as shops closed for the lockdown.
It was also announced on Friday that a mortgage payment holiday scheme for homeowners in financial difficulty during the pandemic has been extended for another three months.It was also announced on Friday that a mortgage payment holiday scheme for homeowners in financial difficulty during the pandemic has been extended for another three months.
As a result of the jump in borrowing, total public sector debt rose to £1,888bn at the end of April - £118.4bn higher than April 2019.As a result of the jump in borrowing, total public sector debt rose to £1,888bn at the end of April - £118.4bn higher than April 2019.
Former chancellor George Osborne told the BBC: "We have to come to terms with the fact that Britain is poorer and the economy is smaller than it would have been."Former chancellor George Osborne told the BBC: "We have to come to terms with the fact that Britain is poorer and the economy is smaller than it would have been."
Asked if the economy would bounce back, he said: "Bounce is the wrong word, but it will recover."Asked if the economy would bounce back, he said: "Bounce is the wrong word, but it will recover."
Ruth Gregory, an economist at Capital Economics, described April's borrowing as "alarmingly high", but added that a small easing of the lockdown from 13 May probably meant the government would not have to borrow as much this month.Ruth Gregory, an economist at Capital Economics, described April's borrowing as "alarmingly high", but added that a small easing of the lockdown from 13 May probably meant the government would not have to borrow as much this month.
And despite the pressure on public finances, Charlie McCurdy, a researcher at the Resolution Foundation, said there were no signs the government was struggling to raise money on the financial markets.And despite the pressure on public finances, Charlie McCurdy, a researcher at the Resolution Foundation, said there were no signs the government was struggling to raise money on the financial markets.
"Record low interest rates mean the UK's higher debt burden should remain more than manageable," he said."Record low interest rates mean the UK's higher debt burden should remain more than manageable," he said.