UK government borrowing rose last month to the highest February deficit on record, largely because of spending on support schemes to help households and businesses with spiralling energy bills.
The government borrowed £16.7bn in February, £9.7bn more than a year earlier and the highest February borrowing since monthly records began 30 years ago, according to the latest figures from the Office for National Statistics.
The government borrowed more despite higher tax receipts and lower debt interest payments. Cumulative borrowing for the full year to the end of March is on track to undershoot official forecasts. Economists said this could raise the chancellor’s hopes of being able to announce a pre-election giveaway later this year – but also warned that the turmoil in the banking sector could deepen the economic downturn.
The government raised £1bn from the new windfall tax on energy companies, the figures showed.
Ruth Gregory, the deputy chief UK economist at Capital Economics, said: “The big risk is that a further escalation in the banking crisis causes a deterioration in the fiscal outlook as the hit to the public finances from weaker economic growth is only partially cushioned by lower gilt [UK government bond] yields.”
Responding to the ONS figures, Jeremy Hunt said: “Borrowing is still high because we’re determined to support households and businesses with rising prices and are spending about £1,500 per household to pay just under half of people’s energy bills this winter.
“What will bring these costs right down is lower inflation, which is why it remains one of our top priorities to halve it this year, alongside growing our economy and reducing debt.”
In the spring budget last week, the chancellor announced that the government’s energy support for households would continue at its current level for another three months. Hunt’s widely anticipated U-turn means the average household bill will not increase from the current ceiling of £2,500 to £3,000 a year from 1 April as previously planned but will stay at £2,500 until the end of June.
Tuesday’s figures also showed that interest payments on government debt in February fell by £1.3bn year on year to £6.9bn. They had risen sharply in previous months because of the effect of higher inflation on index-linked gilts.
With only one month to go until the end of the financial year, the public sector has borrowed £132.2bn so far, £15.5bn more than in the same period last year and the third-highest figure at this stage since records began.
This is well below the full-year deficit of £152.4bn (6.1% of GDP) forecast by the Office for Budget Responsibility (OBR), the government’s spending watchdog, in the budget. Economists said there was a good chance of a lower than expected borrowing total for 2022-23. The impact of previous policy changes to student loans could also push down borrowing.
Gregory said: “Given all this, the chancellor might therefore have a bit of money to play with in the fiscal event in the autumn, not least because the year in which the fiscal rule is judged rolls on from 2027-28 to 2028-29. But the big risk is that the turmoil in the banking sector deepens the economic downturn and the recent improvement in the public finances is blown away.”
Total public spending came in at £80.8bn last month, £9.5bn higher than a year earlier. At the same time, total tax receipts rose by £4.9bn to £77.8bn. The news that self-assessed tax receipts were £24.5bn in January and February, the highest two-month figure since records began in April 1999, “is perhaps an encouraging sign the economy has become a bit more tax-rich”, said Gregory.
Divya Sridhar, an economist at PwC, said: “Looking ahead, the OBR forecast a brighter fiscal outlook than previously expected. The budget measures announced last week spend around two-thirds of this improvement. Borrowing in the financial year 2022-23 is expected to be 14% lower than forecast in November last year. This is a result of larger receipts and a fall in public spending due to a faster than expected decline in energy prices.”
