Covid response keeps UK government borrowing high in April

The UK government continued to borrow heavily in April to support workers on leave and implement measures to stimulate economic recovery.

Net borrowing by the public sector, excluding public sector banks, was estimated at £ 31.7 billion last month, according to data from the Office for National Statistics on Tuesday.

The monthly figure, the first for fiscal year 2021/2022, was the second highest for April borrowing since those records began in 1993, but £ 15.6 billion less than the same month of the last year, when the economy was in its tightest lockdown. It was higher than the forecast of £ 30.9 billion by economists polled by Reuters, but lower than the estimate of £ 39 billion from the Office of Fiscal Responsibility, the fiscal watchdog.

Government borrowing for the fiscal year ending March 2021 was revised down from £ 2.8bn to £ 300.3bn, but remained the highest since World War II, laying bare the cost of government support to the economy during the pandemic.

Chancellor Rishi Sunak said in response to the data that his goal was “to drive a strong economic recovery after the pandemic”. But he added that in the budget, he outlined “the measures we are taking to keep public finances on a sustainable basis by controlling debt in the medium term”.

ONS data showed central government bodies spent around £ 96 billion on daily activities in April. This included £ 3.2bn on the leave program which still protects millions of jobs. However, the scheme cost £ 2bn less than in April last year, reflecting the fact that some workers have re-entered the workforce as the economy reopens.

As the economy recovered, government support shifted from supporting income to stimulating growth. This was visible in a £ 800million corporate tax cut from the same month last year due to the introduction of the ‘super deduction’, a measure that allows businesses to offset the cost. plant and machinery by tax.

But Michal Stelmach, senior economist at consultancy KPMG, noted that corporate tax revenues were higher than the OBR forecast for April, “suggesting that the assumption of relief during its first month was a little lower than expected ”.

Central government tax revenue was estimated at £ 58bn, up from April last year and above OBR forecast, but still well below levels of before the pandemic.

This figure includes higher than expected tax revenues from employees, which testifies to the resilience of the labor market.

Samuel Tombs, chief economist at UK consultancy Pantheon Macroeconomics, said “government borrowing is expected to continue to underestimate the OBR budget forecast, as GDP is expected to grow by around 7% per year in 2021, easily exceeding 4% of the OBR. provide”.

Ruth Gregory, senior UK economist at Capital Economics, said rapid economic growth should mean the outlook for public finances is improving rapidly, so “the Chancellor could be spared having to implement his hike proposals. tax / spending cuts before the 2024 general election ”. .

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