The British government borrowed more than expected at the beginning of 2023-24 as rising social security benefits and debt interest rates boosted public spending.
Public sector net borrowing was £25.6bn in April, higher than the Office for Budget Responsibility’s estimate of £22.4bn and £11.9bn higher than the same month last year.
Tax revenues were strong, but higher revenues were outweighed by additional energy support program costs, record debt interest payments for April and a large increase in social security spending. It rose 10.1% in April, reflecting higher inflation.
Fiscal trends are difficult to interpret at the start of the financial year, but Prime Minister Jeremy Hunt issued a statement on Tuesday, highlighting that government borrowing remains high.
Pointing to official projections that public debt as a share of national income will fall later this year, Hunt said: “Debt and borrowing are too high right now, so reducing debt is one of our priorities.” said.
April’s figures were disappointing for the prime minister, but they brought good news with the fiscal year 2022-23 fixing the budget deficit.
The Office for National Statistics said it estimated the government had borrowed £137.1bn last financial year, down £2.1bn from previous estimates and lower than the OBR’s estimate for the year in the March Budget. £15.3bn less.
Compared to April 2022, income tax and corporate tax revenues were strong with an increase of 7.8% and 7.7% respectively.
National insurance revenues fell as they compared to last April, when a 1.25 percentage point increase in tax rates for employees and employers was imposed before the government made a U-turn in the fall.
Of even greater concern to ministers would be a 0.4% annual increase in VAT revenues in April, well below March’s 10.1% inflation rate. This suggests that consumers are starting to tighten up and spend much of their income on food that is not subject to VAT.
Samuel Toombs, chief U.K. economist at Pantheon Macroeconomics, said the numbers were worse than expected, but that there were often big swings in the signal these statistics showed early in the financial year.
“I don’t think alarm bells are ringing for the Treasury Department at this stage,” he said.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the weak numbers were unlikely to stop Hunt from offering tax benefits before the next election. “We speculate that much of what the prime minister gave will probably be taken away once the election is over, regardless of whether Conservatives or Labor are in power,” she added.
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