By Darwin Friend, policy analyst
The Office for National Statistics (ONS) has released the most recent statistics on the UK’s public sector finances. They illustrate the economic costs of coronavirus on the British economy and, combined with labour market figures released earlier this week, demonstrates why we need a revival for the economy focused on jobs and investment.
The key points from the stats released today included:
- Borrowing in 2020-21 is estimated to have been £303.1 billion, this is £246.1 billion more than in 2019-20 and the highest nominal public sector borrowing in any financial year since records began in 1946-47.
- Expressed as a ratio of gross domestic product (GDP), borrowing in 2020-21 was 14.5 per cent, the highest ratio since the end of World War Two, when in 1945-46 it was 15.2 per cent.
- Borrowing in 2020-21 is estimated to have been £24.3 billion less than the £327.4 billion forecasted by the Office for Budget Responsibility in their Economic and Fiscal outlook – March 2021.
- Central government tax receipts are estimated to have been £523.6 billion in 2020-21, this is £34.2 billion lower than in 2019-20, with notable falls in VAT (£14 billion), business rates (£10.6 billion), fuel duty (£6.7 billion) and stamp duty (£3 billion).
- Central government bodies are estimated to have spent £941.7 billion on day-to-day activities in 2020-21, an increase of £203.2 billion since 2019-20; this includes £78.2 billion spent on coronavirus job support schemes.
- Borrowing is estimated to have been £28 billion in March 2021, £21 billion more than in March 2020, making it the highest level of March borrowing since monthly records began in 1993.
- Debt was £2,141.7 billion at the end of March 2021 or approximately 97.7% of GDP, a level not seen since the early 1960s.
Central government tax and National Insurance receipts in 2020-21 fell by £34.9 billion, or 5 per cent, compared with the same period last year, while government support for individuals and businesses during the pandemic contributed to an increase of £203.2 billion, or 27.5 per cent, in central government day-to-day spending.
Central government current receipts are expected to have fallen by £34 billion in 2020-21 compared with 2019-20 to £722.8 billion. It is reported that much of this fall occurred in the first half of the 2020-21 financial year, with the second half of the year showing some signs of recovery. This is welcome news, however borrowing has understandably spiked during the pandemic while tax receipts have plummeted, painting a dire picture for the economy.
Reversing this trend by cutting borrowing and boosting tax receipts must be the Treasury’s priority. The government should cut taxes and support businesses to enable a job first recovery, creating rising revenues and higher employment levels, and ultimately more tax receipts for the government.
Unsurprisingly, spending on goods and services has risen in 2020-21 with central government departments spending £63.1 billion more on goods and services in 2020-21 than in 2019-20. This included £48.5 billion more on procurement and £14.4 billion more on pay. These increases reflect high levels of expenditure by the Department of Health and Social Care, devolved administrations and other departments in response to the coronavirus pandemic, including the COVID-19 Test and Trace programme which had £22 billion allocated to it in 2020-21.
The government must be held accountable for any use of taxpayers’ money, especially given the significant sums spent on procurement during this pandemic. This should be done through a swift and decisive public inquiry into the handling of the covid crisis, evaluating how public money was spent and whether it was used effectively.
Public sector net debt stood at £2,141.7 billion at the end of March 2021, an increase of £344 billion on last year. The increase in debt over this period combined with a fall in GDP has helped push debt as a ratio of GDP to levels last seen in the early 1960s. Debt at the end of March 2021 was equivalent to 97.7% of GDP. However, these figures do not include areas of future spending not formally recognised, meaning the real national is much higher than suggested. In March, we estimated the real national debt will reach £9.6 trillion, or £143,000 per person, this year.
This is a substantial and concerning rise despite the impact of the pandemic. Recent government trends of allowing debt to continue to grow cannot continue now lockdown is easing. Rather, debt levels need to be brought back down quickly through controlled spending and measures that stimulate economic growth. For a start, we have recommended 15 savings that would save £43 billion in 2020-21, rising to £73 billion by 2025-26. Failure to take difficult decisions makes us more susceptible when the next crisis inevitably occurs.
One relief has been debt interest payments which fell to £38.8 billion in 2020-21 a drop of £9.3 billion from 2019-20. This is due to movements in inflation and interest rates which have ultimately made the cost of servicing debt relatively less. However, this is not an excuse for complacency, for these rates will not remain at their current levels, with the Office for Budget Responsibility (OBR) forecasting the cost of servicing debt to rise in upcoming years.
Simply put, these figures should not and cannot be swept under the carpet by the government. Instead, they should focus the minds of ministers and civil servants across Whitehall to the fiscal challenges awaiting them post-pandemic. With borrowing and debt reaching decade long highs there can only be one answer, and it isn’t further damaging tax rises.