Government Borrowing Hits Highest Level Since End of WW2

Government borrowing plummeted by £15.6 billion in April as lockdown measures eased, compared to the same time last year when the country was in total lockdown.

Yet the £31.7 billion borrowed in April marked the second-highest figure for April since monthly record-keeping began in 1993- only topped by the £47.3 billion borrowed in April 2020, at the start of the pandemic.

The Office of National Statistics (ONS), which published the figures, said that the effect of Coronavirus on public sector borrowing had been 'substantial', pushing day-to-day spending up to £942.7 billion throughout 2020/21- a rise of more than £200 billion per day.

Over the last financial year alone, the public sector borrowed the equivalent of 14% of the UK's GDP to help pay for financial support and special measures during the pandemic.

The extra funding needed to pay for support schemes and a shrinking of the economy due to lockdown means that the UK's net debt at the end of April was equivalent to 95.8% of its GDP- a level of debt not seen in the UK since the early 1960s.

Meanwhile, the last time any government borrowed so heavily in a single given year was at the close of World War Two, when public sector borrowing averaged 15.6% of the country's GDP for 1945-6.

After the figures were released, Chancellor Rishi Sunak reiterated that the Budget aims

to keep the public finances on a sustainable footing by bringing debt under control over the medium term.

Indeed, despite the large gap between spending and income, the ONS figures indicate that tax income is on the rebound as parts of the economy open up again.

Tax receipts were modestly higher in April 2021 than for the same period last year (+ £3.8 billion), and rock-bottom interest rates mean that, despite ballooning debt, the interest on repayments was only £0.1 billion more than on the total for the same period last year.

There are glimmers of good news in today's government borrowing figures. Whilst spend still considerably greater than income, that income is recovering, up 7% compared to April last year.

As the country heads to another "new normal" people are getting back in the car again, back to the pub again and back to the business of buying houses," said AJ Bell financial analyst Danni Hewson.

[But] there are concerns. Borrowing was higher in April than it was in March. Measures like furlough are still providing a huge amount of support, and recovery is fragile.

Consumer confidence that's been boosting spend and investor sentiment will be shaken by news of new guidance for some areas seeing a high level of cases of the Indian Covid variant.

However, the Bank of England's May forecast on national economic growth predicted a 'bounce back' of 7.25% on the UK's GDP, which would represent the fastest economic growth in more than 70 years.

Capital Economics' Senior UK Economist Ruth Gregory said:

April's public finances figures showed that the government's financial position isn't as bad as the Office for Budget Responsibility (OBR) predicted only two months ago, reinforcing our view that the tax hikes and spending cuts that most fear may be avoided.

In March, the OBR predicted that GDP would grow by 4% in 2021, borrowing to reach £234 billion and total debt to breach 100% of GDP.