By David Milliken and Andy Bruce
LONDON (Reuters) -British public borrowing has fallen by more than half since its peak during the pandemic, but debt servicing costs are rising rapidly, official figures showed on Tuesday ahead of new budget plans from finance minister Rishi Sunak.
Sunak is under pressure to announce measures on Wednesday that will ease the immediate impact on households from soaring inflation, which is largely driven by higher energy costs, exacerbated by Russia’s invasion of Ukraine.
Borrowing for the first 11 months of the 2021/2022 financial year was 138.4 billion pounds ($182.3 billion), the Office for National Statistics said. This is 52% below the record 290.9 billion pounds borrowed between April 2020 to February 2021, when the public finances bore the brunt of the COVID-19 pandemic.
Compared with the government’s most recent budget forecasts in October, Sunak has cash to spare.
Borrowing for 2021/22 is comfortably on track to undershoot the 183 billion pounds or 7.9% of gross domestic product forecast by the Office for Budget Responsibility, largely thanks to stronger-than-expected tax revenue.
But Sunak, in response to Tuesday’s figures, said he wanted to take a “responsible” approach.
“With inflation and interest rates still on the rise, it’s crucial that we don’t allow debt to spiral and burden future generations with further debt,” the finance minister, or chancellor, said in a statement.
Borrowing in 2020/21 hit a peacetime record of 14.8% of GDP. And although net debt is now falling as a share of GDP, around a quarter of British borrowing costs are tied to the rate of inflation, which is close to a 30-year high.
Debt servicing costs in February were 53% higher than a year earlier at 8.2 billion pounds.
“Strong tax receipts and a year-on-year fall in public borrowing present a positive backdrop to the chancellor’s Spring Statement on Wednesday. But high inflation and the consequences of geopolitical uncertainty signal tougher fiscal times ahead,” said Martin Beck, chief economic advisor to EY ITEM Club.
Borrowing in February alone came in much higher than expected at 13.1 billion pounds – more than 5 billion pounds above economists’ average forecast in a Reuters poll – although this overshoot was largely cancelled out by a 4.2 billion pound upward revision to January’s budget surplus.
Public sector net debt, excluding state-owned banks, totalled 2.327 trillion pounds or 94.7% of GDP.
Most economists expect Sunak to offer relatively limited support to hard-pressed households, in order to reduce government borrowing further after its COVID-19 surge and allow tax cuts nearer to a national election due by 2024.
Measures under consideration for announcement on Wednesday include reducing vehicle fuel taxes, raising the income level at which workers start paying social security contributions, and speeding up inflation-linked increases to welfare benefits.
But Sunak has made clear he wants to stick with plans announced in September to raise the overall rate of payroll taxes paid by workers and employers to fund rising health and social care costs.
($1 = 0.7591 pounds)
(Reporting by David Milliken and Andy Bruce; Editing by Susan Fenton)