The economy recovered from the coronavirus lockdowns and government borrowing fell by 3% in September.
Borrowing – the difference between spending and tax income – stood at £21.8bn, which was £7bn less than in September 2020.
However, this was the 2nd-highest September figure since 1993 when monthly records were started.
During the pandemic, borrowing reached record highs.
Government spent billions on temporary measures to preserve wages such as furlough, which ended last month.
As a result, government debt has been pushed up to more than £2.2 trillion at the end of September this year – about 95.5% of the UK’s gross domestic product (GDP), and the highest level recorded since the early 1960s.
The Office for National Statistics (ONS) estimates that the government has borrowed a total of £108.1bn so far in the current financial year.
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The government spent more money on Covid and also collected less tax revenues during the pandemic. Some tax holidays for VAT were given to some of the worst-affected businesses.
As a result of a lower income from taxes and higher spending, the ONS now estimates that in the 2020-21 financial year the government borrowed £319.9bn. This was 14.9% of the GDP. It is the highest level since World War Two.
In September, the monthly borrowing rate was lower than expected by economists.
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Paul Dales of Capital Economics UK, the chief UK economist said the outlook was better for the government before next week’s Budget but he wasn’t expecting a major fiscal giveaway.
He said, “Borrowing fell much faster than nearly everyone anticipated.”
“Despite this, rumours suggest that the Chancellor will keep an extremely tight grip on public finances next Wednesday’s Budget in order to reduce borrowing even faster and create a fiscal war chest for deployment before the 2024 elections.”
Responding to recent official numbers, the chancellor stated that while debt levels are up, “our recovery” is well underway. There are more employees than ever on payroll and the fastest projected growth in G7 this year.
“Next week at the Budget and Spending Review I will present how we support public services and businesses while making sure our public finances are fit for the future.”
Professor David Miles is a former member of Bank of England’s Monetary Policy Committee. He was also professor of financial economics at Imperial College.
The BBC Today program featured him as saying that the debt had fallen very fast after the Napoleonic wars and the First World War.
“All the people who were in the army or other armed forces went back to work, tax revenue increased, and the government was spending less money on armaments. That’s not happening now. So I believe it will be much more difficult to reduce the debt stock to GDP than in the aftermath to those wars.”
Recent years have seen the government be able borrow quickly at extremely low interest rates. This makes it more affordable.
However, rising inflation may mean that the Bank of England will likely raise interest rates in the near future to try and keep living costs down.
Andrew Bailey, the Bank governor, said Sunday that they “will need to act soon” in response to rising inflation.
Investors are anticipating rates being raised in 2020 or 2022, even though he has not given any hint as to the date.
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