Government borrowing hit almost £36bn in August to push the UK‘s national debt to a record £2.024tn – more than the value of the UK economy – with the economic fallout of the Covid-19 pandemic weighing heavily on the public finances.
The monthly borrowing figure – a record for August – follows unprecedented spending by the government to combat the coronavirus and sent the accumulated borrowing for the first five months of the fiscal year to almost £174bn. That is the highest level for the period since the Office for National Statistics records began in 1993 and overtakes the total borrowed in an entire year at the peak of the financial crisis.
However, the deficit in August was £2bn lower than analysts expected and £8bn below the amount the Office for Budget Responsibility estimated earlier this year when it forecast the likely gap between government spending and income.
Borrowing picked up in August as the government paid out £4.7bn to cover some of the lost income of self-employed workers and spent more than £500m to cover the cost of the Treasury’s eat out to help out scheme. A VAT cut for the hospitality sector meant that overall sales tax receipts were £3.7bn lower than in August 2019.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said monthly borrowing figures would decline sharply in the run-up to Christmas as the government scaled back its spending and tax receipts recovered.
He said the new job support scheme, which the chancellor announced on Thursday, was “markedly less generous” than the previous furlough scheme,
“We also expect take-up of the job support scheme by employers to be modest as they are financially better off employing a few staff members full-time than keeping on a larger number of staff part-time.”
He said the lack of any significant injection from September to support the economy meant GDP would flatline at September’s level, “which we judge is approximately 5% below its pre-Covid peak – over the next three months”.
The government came under heavy criticism after the chancellor unveiled his multibillion-pound spending package to boost the economy, with the chief secretary to the Treasury, Steve Barclay, forced to defend the emergency measures on Friday morning.
Barclay defended the government’s plans but warned that it would be a “difficult winter” and many jobs would not be saved.
“We’ve been honest with the public that we will not be able to save, regretfully, every job,” Barclay said.
Speaking on Sky News, he added: “There’s a whole range of investment going into the economy in those sectors while we protect as many of those jobs that are viable, that people have been protected in initially through the furlough and now through the winter package.
“It is right that we also look at the cost to the wider economy, these measures come at a significant fiscal cost and that’s why it’s right we target those jobs that are viable during what is going to be sadly a difficult winter.”
Figures published by the Treasury’s independent forecaster, the OBR, suggested borrowing could increase to £372.2bn for the financial year ending March 2021 though the extra costs of government loans turning sour and £24bn of new spending for the NHS, vaccines and coronavirus testing revealed on Thursday could push the figure towards £400bn.
Howard Archer, the chief economic adviser to the EY Item Club, said the deficit was likely to still be lower than the OBR forecast at £360bn after lower spending and higher tax receipts take effect.
“Even allowing for the fact that the rate of decline in the public finances should slow as the economy continues to recover following record contraction of 20.4% quarter on quarter in the second quarter,” he said.