UK government borrowing figures released: what Jeremy Hunt has said as ONS data shows big annual increase
Energy prices and record inflation levels have contributed to a surge in public borrowing - with commentators also blaming Liz Truss and Kwasi Kwarteng
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The cost of energy bills support and the soaring expense of paying off the national debt both led to an £18 billion jump in the tax year to March 2023. The figures cover Liz Truss’s short stint as Prime Minister.
The Mini Budget delivered by her Chancellor of the Exchequer, Kwasi Kwarteng, in September 2022 sent the cost of government debt soaring. The unfunded tax cuts they promised spooked markets to the extent that the value of the pound temporarily crashed, and pension funds almost went bust.
Current Prime Minister Rishi Sunak’s government has sought to rebuild confidence in the UK’s public finances. Chancellor Jeremy Hunt hiked the country’s tax burden to record levels and promised to work on the basis of “sound money” in his Autumn Statement. He then pledged to deliver ”a Budget for growth” last month.
So, what do the latest government borrowing figures show - and how does government borrowing work?
What is government borrowing?
Government borrowing is often oversimplified, with some commentators comparing it to household finances. However, it’s much more complicated than that.
Public borrowing occurs when the government runs a deficit - i.e. it spends more than it raises through taxation. If a deficit runs for more than a year, you start to build debt. Here in the UK, we have only had a budget surplus (when the government has received more than it’s spent) in five years out of the last 50, with the most recent surplus coming in 2000/01.
Debt has become a loaded term when it comes to household finances - if you have too much of it, it’s likely to be bad news for your lifestyle. But, in the context of a country, debt is viewed differently. Indeed, most countries have a national debt.
Borrowing and building up debt can help to fuel economic growth. The rub is that you have to show the markets that you can service your debt or at least keep it under control - something Liz Truss and Kwasi Kwarteng failed to do in the Mini Budget. Put another way, the actual deficit and debt figures don’t matter as much as the government tax and spend plan (i.e. the Budget) that goes with them.
It is also worth noting how borrowing works, as this is another key point of difference from household finance. The government raises money through things called bonds (also known as gilts), which are essentially IOUs that the government sells to investors.
These can be short-term, or extremely long-term - as long as 55 years. The holders of these bonds receive regular interest payments, which tends to make them a relatively safe investment.
Issues can arise for the government if inflation rises steeply, as the interest on many bonds is linked to the rate of price rises in the economy. Governments can also run into trouble if they seek to sell too many bonds - as the Truss administration did last autumn - as this can significantly reduce their value to investors, limiting how much you can borrow.
What do latest government borrowing figures show?
According to data from the Office for National Statistics (ONS) published on Tuesday (25 April), public borrowing soared to £139.2 billion in the 2022/23 financial year (i.e. April 2022 to April 2023).
This figure was the fourth highest since records began and £18.1 billion higher than the previous year. But it was also £13.2 billion below the £152.4 billion the OBR (the UK’s public finances watchdog) had predicted in March.
Energy bills support for households and businesses jumped to £41.2 billion over the winter. Meanwhile, inflation - which soared to a record high in October 2022 and has remained in double-figures ever since - has increased the cost of debt interest payments to £106.6 billion. This marked an increase of 47% year-on-year and comes as a result of index-linked gilts (i.e. those that are tied to inflation).
Separate HMRC data published on the same day as the ONS’s figures showed an extra 9.9% was collected through taxes in 2022/23, bringing the government’s total income to £786.6 billion. It means UK tax receipts as a proportion of GDP reached 31.4% over the past 12 months - much higher than the 27.3% recorded 20 years ago.
It all leaves overall public sector debt at 99.6% of gross GDP - the highest ration since the early 1960s. However, historically, this proportion is much lower than the highs recorded between the World Wars, when it rocketed as high as 250%.
As well as calculating borrowing and debt statistics, the ONS also published a ‘public sector net worth’ metric for the first time. This statistic takes a much wider look at the UK’s balance sheet, including non-financial assets, and shows the country has an overall deficit of £605 billion - up from £530 billion last year.
What has been the reaction to the figures?
Chancellor Jeremy Hunt said the figures were the result of the ongoing effects of Covid-19 and the energy crisis.
He said: “These numbers reflect the inevitable consequences of borrowing eye-watering sums to help families and businesses through a pandemic and [Vladimir] Putin’s energy crisis.”
Hunt added: “We stepped up to support the British economy in the face of two global shocks, but we cannot borrow forever. We now have a clear plan to get debt falling, which will reduce the financial pressure we pass on to our children and grandchildren.”
Commenting on the news, Danni Hewson - head of financial analysis at AJ Bell - said: “The various incumbents of Number 11 have had to juggle a spike in interest payments on past debt whilst also dealing with a variety of other pressures, not least those of their own making.
“The current Chancellor has set himself what seems to be the impossible target of getting debt falling as a proportion of GDP in just five years’ time. Inflation is expected to continue cooling and energy support measures should become obsolete, but there is a worrying number in this latest data.
“Whilst borrowing was significantly less than the OBR had previously forecast, revenue also fell short, and though consumer and business confidence has picked up over recent months, economic growth has flatlined. Hunt may have told business leaders he wants to bring down taxes as soon as growth allows but there’s little clarity on where that growth is going to come from.”
Meanwhile, the Resolution Foundation think tank said the new public sector net worth statistic was “far more worrying” than the deficit and debt figures. “A growing net worth deficit shows that we are failing to invest in our future, and we need to turn this record around urgently,” it said in a statement.