The UK government borrowed a lot more money than usual last month.
January is always seen as a great month for the Treasury, as bumper tax revenues typically exceed public borrowing requirements.
But not this year.
With the pandemic response still in full flow, including a significant number of employees still on furlough, the UK government borrowed a record £8.8bn last month.
It’s the highest level of public borrowing in January since records began back in 1993 and the first time in a decade that more has been borrowed in January than raised in tax revenues.
Driving this massive level of public borrowing was a combination of lower tax revenues, down £1bn on last January, and higher public spending, up £19.7bn on the same month last year.
As a result of the continued government financial response to the pandemic, government borrowing for the financial year to date has reached a total of £270.6bn, which is £222bn higher than the same period a year earlier.
The independent Office for Budget Responsibility forecasts that government borrowing could get close to £400bn by the end of the financial year in March; that would be its highest peacetime level in any year since 1945.
While that forecast borrowing level is lower than previously thought, as a result of lower interest payments and the disappearance of EU budget contributions, it’s still a significant number.
With rising levels of public borrowing, the total national debt now stands at £2.11 trillion, equivalent to 97.6% of gross domestic product (GDP). National debt as a percentage of GDP was last seen at these levels in the early 1960s.
Publishing the latest borrowing figures, the Office for National Statistics explained that the impact of the Covid-19 pandemic on the public finances is now becoming clearer, but its effects are still not fully captured in the data.
Estimates of tax receipts and borrowing are, according to the ONS, “subject to greater than usual uncertainty.”
Responding to the figures, Chancellor Rishi Sunak said:
“Since the start of the pandemic we've invested over £280bn to protect jobs, businesses and livelihoods across the UK - this is the fiscally responsible thing to do and the best way to support sustainable public finances in the medium term.”
With Sunak’s Budget approaching on 3rd March, he has a balancing act between restoring the public finances and supporting the economy through the pandemic, including the next recovery stage as the country comes out of its latest lockdown.
There is a great deal of speculation about whether or not the Chancellor will start to raise taxes at this Budget, or wait until the autumn when the path to economic recovery is a little clearer.