Public sector borrowing hit £34.1bn in December
Public sector net borrowing reached £34.1bn in December – the third-highest monthly figure since records began in 1993.
The figure from the Office for National Statistics (ONS) means that:
• Borrowing since the start of the financial year in April has reached £270.8bn
• Borrowing in December 2020 was £28.2bn more than in December 2019
• December’s figure was also higher than the £31.6bn borrowed in November 2020
• Public sector debt has reached an all-time high of £2.13trn – equivalent to 99.4% of GDP, the most
since the financial year ending 1962
Chancellor Rishi Sunak said: “Since the start of the pandemic we’ve invested over £280bn to protect jobs and livelihoods across the UK, and support our economy and public services.
“This has clearly been the fiscally responsible thing to do. But, as I’ve said before, once our economy begins to recover, we should look to return the public finances to a more sustainable footing.”
Economists were divided over how soon Britons could see tax rises as part of the government’s response.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said in a note: “Public borrowing will fall sharply from about 20% of GDP this year to between 8% and 10% in 2021/22, if the government stops the furlough and self-employment income support schemes in the spring, and healthcare spending declines.
“We doubt that the chancellor will go a step further in the Budget on 3 March and push through large immediate tax rises or non-health spending cuts.
“But the Treasury will not tolerate a 10% deficit indefinitely and the timing of the next general election in 2024 suggests that Mr Sunak will not wait until the economy has fully recovered before actively tightening fiscal policy.
“Accordingly, we expect taxes to rise sharply in 2022, in order to attempt to stabilise the debt-to-GDP ratio while at the same time funding big demography-linked increases in health and pensions spending.”
Richard Hunter, head of markets at Interactive Investor, said the borrowing figure “underscores the inevitability of tax hikes in the March budget”.
He added: “There is, therefore, the increasing need for a substantial amount of 2020’s enforced savings, propelled by pent-up demand, to find its way back into the economy later this year.”
Meanwhile, MPs have warned that some local authorities are taking on risky levels of debt in an effort to stay financially afloat.
Meg Hillier, chairwoman of the Commons public accounts committee, said the Treasury was displaying a “worryingly laissez faire attitude” to the issue.
Ms Hillier said that “some local authorities have taken on extremely risky levels of debt in recent years in an effort to shore up dwindling finances”, particularly in commercial property investments.
“The pandemic has doubly exposed that risk – in the huge extra demands and duties it is placing on local authorities, and in the hit to returns on commercial investments,” the Labour MP added.
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