The British government’s borrowing is halved as the economy returns from downturns

The British government’s borrowing more than halved in the financial year 2021-22, which ended in March, when the economy returned from the pandemic, giving the chancellor more opportunity to deal with the cost of living crisis.

The Office of National Statistics’ initial estimate of public sector net borrowing for 2021-22 was $ 151.8 billion. GBP, a decrease of more than 50 percent from 317.6 billion. pounds in 2020-21, when the corona crisis was worst.

These preliminary data were worse than the £ 128.8 billion that the government’s fiscal watchdog, the Office for Budget Responsibility, predicted in its March forecast for the financial year. But with strong tax revenues, economists said the final official figure is likely to improve significantly as additional spending data comes in from public authorities.

Representatives of about 6.4 percent of national income, the level of government loans was lower than the total five years after the global financial crisis in 2007-08, indicating a much faster economic recovery from the virus.

Economists said the figures were better than expected and that the ONS would soon downgrade the estimates for borrowing in 2021-22.

Michal Stelmach, senior economist at KPMG UK, said the difference of £ 24bn. between the OBR forecast and the ONS figures stemmed from an assumption from the fiscal watchdog that many government departments would not have spent their full budgets by 2021-22.

Bar chart of public sector net borrowing (£ billion) showing public loans more than halved in 2021-22

“The main difference comes from [the OBR’s] judgments that do not yet appear in the published data, especially in relation to greater departmental under-consumption, lower investments from local authorities and an expected downward adjustment of the cost of the Covid-19 loan guarantee schemes, ”said Stelmach.

Samuel Tombs, UK economist at Pantheon Macroeconomics, noted that “early borrowing estimates have recently been downgraded significantly as more data has been collected”. He said tax revenues were higher than OBR had predicted for the full fiscal year, and government spending was often revised significantly.

The sound state of public finances gave Chancellor Rishi Sunak the opportunity to alleviate the pain of the cost-of-living crisis, according to James Smith, research director of the Resolution Foundation think tank.

A “high-income” recovery, Smith said, meant “the chancellor may have little reason not to provide much-needed political support to families as they deal with the higher inflation and energy bills now hitting their finances”.

Sunak, however, gave no hint that he was considering any impending further action to help the households. In a statement after the figures were released, the chancellor highlighted the support he said he had already offered.

“We need to manage public finances sustainably to avoid burdening future generations with additional debt,” he added.

Tax revenues were strong in March and throughout 2021-22. Central government revenue amounted to DKK 830 billion. pounds in the financial year, which is about 6.5 billion. pounds more than the OBR forecast at the time of the spring statement.

In response to the data, the OBR said the strength of the revenue was “broadly based with all the major taxes recovering strongly” and the improvement continued even though the broader economic recovery was hit by higher energy prices.

High inflation tends to increase government revenue, both because spending is higher in the short term as prices rise and many thresholds in the tax system are set in cash.

The fiscal watchdog said strong revenues were “thanks to strong growth in the economy’s cash size”.

But it sounded a caution on the public spending side of the state budget. Preliminary figures showed government spending was £ 33.8bn. higher than they had expected, reflecting large overruns in purchases of goods and services as well as net investment.

Some of it would likely be revised down, OBR said, but it noted that the forecast miss was large enough to speculate on whether there had actually been an increase in government spending at the end of the fiscal year.

Public net investment was also £ 18.5bn. higher than OBR’s expected by £ 7bn, which is likely to be automatically revised away when ONS takes into account the government’s policy changes on student loans and lower estimates of likely losses on Covid loan guarantees.

However, the watchdog indicated that some of the extra costs would likely be real, and this suggested that “supply bottlenecks may not have affected capital outlays by the end of the year by as much as [we] expected”.

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