British government borrowing jumped by 31.7% in August compared with August 2023, taking borrowing to the highest level since treasury finances took a severe battering from COVID-19 in 2020-2021. File Photo courtesy Bank of England/EPA-EFE
British government borrowing jumped by almost a third to $18.2 billion last month compared with August 2023, taking borrowing to the highest level since treasury finances were hammered by a collapse in tax receipts and massive spending to support individuals and businesses during COVID-19, figures out Friday show.
Borrowing, defined as the gap between income and public sector spending, was $4.4 billion more in August than in August 2023, the third-highest borrowing for the month since records began in 1993, the Office for National Statistics said in a bulletin. Advertisement
The ONS said the $587 million borrowed each day of August exceeded the two previous high marks in 2020 and 2021 during the COVID-19 pandemic when the net borrowing to GDP ratio jumped to 15.7% in the 2020 financial year ending March 2021, a level not seen since World War II.
ONS Chief Economist Grant Fitzner said in a post on X that strong growth in the amount of taxes pouring into government coffers was insufficient to balance out higher government spending to pay for increases to welfare benefits and pensions and rises in expenditure on public services “due to increased running costs and pay.” Advertisement
From the start of the financial year April 6 and the end of August borrowing hit $85.3 billion, also the third highest year-to-August borrowing on record, bringing the provisional estimate of public sector net debt to GDP ratio to 100%, the highest in more than 60 years.
With Inflation down from double digits in fall 2022 to just above the Bank of England’s 2% target, long-term economic growth was the only way to deal with high levels of debt, Allianz chief economic adviser Mohamed El-Erian told the BBC.
“The alternatives tend to be much more painful short-term and long-term so economic growth has to remain a mission,” he said.
The new Labor government, which came into office in July, put growth squarely at the top of its priorities.
However, it faces an uphill battle with the economy posting zero growth in June and July and BoE revising down its third-quarter growth forecast to 0.3% from 0.4%, posing tough challenges for Chancellor Rachel Reeves’ first budget on Oct. 30.
Labor said the higher-than-expected borrowing will only add to the problems facing Reeves who alleges she inherited a $29.3 billion hole in the government finances left behind by the outgoing Conservative administration of Prime Minister Rishi Sunak. Advertisement
“When we came into office, we inherited an economy that wasn’t working for working people,” said Treasury Chief Secretary Darren Jones.
“Because of the $29.3 billion black hole in our public finances we have inherited this year alone, we are taking the tough decisions now to fix the foundations of our economy, so we can rebuild Britain and make every part of the country better off,” he said.
