The UK government has borrowed £139.2bn for the financial year 2022-23, a significant amount less than the official forecasts. This development could lead to tax reductions later this year.
The Office for National Statistics published the borrowing figure on Tuesday. It was PS13.2bn lower than predicted last month, mainly due to lower than expected spending by public agencies.
The ONS estimated public spending for the year to be £17,2bn less than the Office for Budget Responsibility predictions — even though subsidies for household and business energy costs totaling £41.2bn were provided.
Jeremy Hunt responded to the figures by describing the amount of support provided through the energy crises last year as being “eye-watering”. He blamed the subsidies for a £18.1bn increase in borrowing compared to 2021-22.
Ruth Gregory, Capital Economics’ deputy chief UK economist, said that the improved finances of the government would encourage the chancellor in his Autumn Statement to make giveaways later in the year.
She said: “With the next elections fast approaching, it would not surprise us to see further fiscal loosening.”
The increase was even more dramatic, as government borrowing in March reached its second highest level since 1993.
The government’s Tuesday figures show that the fiscal deficit of the country has been reduced from 15 percent of the gross domestic product (GDP) in 2020-21 when the pandemic caused a large amount of support to families and businesses. It was then reduced to 5,5 percent in 2022-2023.
The OBR’s forecast for 2022-2023 was £4.1bn higher than actual government revenue.
The fiscal watchdog was wrong to expect that the economy would perform as well as it did, despite the fact that revenues increased by more than 10% in 2022-23 due to a strong economic recovery and high levels of inflation.
The government’s borrowing will fall in the current year, as the government reduces energy subsidies and lower inflation eases the burden on servicing the debt. Taxes are also expected to continue rising. The OBR expects the deficit to remain above £100bn at least until 2024-25.
The goal of the government is to reduce borrowing to below 3 percent of GDP in five years. This target is expected to be achieved relatively easily by the OBR, with borrowings falling to 3.1% of GDP in 2024-25 due to public spending restraints and higher taxes.
Some economists doubt that borrowing will decline as predicted over the next two year. Samuel Tombs is the chief UK economist for Pantheon Macroeconomics. He believes that borrowing will likely settle at around 4% of GDP. He said that the Conservatives will likely loosen fiscal policies in 2024, in preparation for the next general elections which must take place by January 2025.
The new figures for the balance of the public sector also revealed that the public sector has significantly more liabilities as compared to assets.
The ONS reported that the net worth of the public sector was a deficit of PS605.8bn by the end of March. This means the government’s assets were greater than its debts, which includes all non-financial ones, like roads and buildings.
In 2009-10 the net worth of the public sector was positive. However, the economic challenges since the financial crises, and the pandemic have led to debts exceeding assets. The net worth will further decline by £70.6bn between 2022-2023.