Official figures reveal that February’s public borrowing rose to an all-time high as significant subsidies were paid by the government to limit energy costs for businesses and households.
According to the Office for National Statistics, net borrowing reached £16.7 billion in February, an increase of £9.7 trillion compared to the same month in 2022. This is the highest level for February borrowing since 1993 records began.
The main reason for this increase was a £6.4 trillion rise in government spending on subsidies like the Energy Price Guarantee. This guarantees that the average household’s energy bill will not exceed £2,500 per year.
Last month, the public sector’s net debt reached 99.2 percent of GDP. This brings the ratio back to levels that were last seen in Britain’s rebuilding efforts after the Second World War.
In February, the government borrowed £132.2 billion to make the third-highest cumulative borrowing since 30 years ago. This figure is PS15.5 trillion higher than the previous year.
Although the cost of servicing government debt is affected by inflation, it fell to PS6.9billion in April from £8.2billion last year, but is still high compared to historical levels. Since last April , the RPI is in double digits.
Jeremy Hunt, chancellor, stated: “Borrowing remains high because we’re determined support households and business with rising prices. We are spending approximately £1500 per household this winter to pay just below half of the people’s energy bills.
Lower inflation will bring down these costs. That is why we continue to prioritize reducing it by halving it, as well as growing our economy and decreasing our debt.
KPMG UK senior economist Michal Stelmach stated that the outlook for public finances will improve due to a £40 billion drop in energy subsidies and cost-of living subsidies in 2023-24. Also, the recent fall of government bond yields, and RPI inflation, which together determine the cost to service debt.
He also stated that KPMG’s growth forecast is lower than OBR’s and expected GDP to be 3 percent lower by 2027-228. This could easily wipe out the £6.5 billion of current headroom to meet the fiscal rule for falling debt.
In his Budget last week, the chancellor stated that he would achieve his fiscal target of reducing debt as a percentage of GDP by 2028. This is the lowest margin for error that any chancellor has had in a Budget since 2010. The OBR is the government’s watchdog on spending and tax.
Ruth Gregory, the Capital Economics deputy chief UK economist, stated that the biggest risk to the government is an “further escalate in the banking crisis causes damage in the fiscal outlook because the impact on the public finances by weaker economic growth is only partially mitigated by lower gilt yields.”
According to her, cumulative borrowing for the current fiscal year will be well below what the OBR forecast last week. This, along with the inclusion of policy reforms for student loans in the national statistics next month, will drive borrowing down by billions.