Figures released by the Office for National Statistics (ONS) have shown that government borrowing has hit its highest level since World War II. The pandemic has seen the government pulling out all the stops to support jobs and the economy over the past year, on top of which there has been the cost of dealing with Covid itself. This has left the national coffers in their worst state in decades.
According to the data, government borrowing reached over £303 billion in the year leading up to March, which was nearly £250 billion higher than the previous year. In March alone, borrowing stood at £28 billion, which set a new March record. Despite the bleak figures, officials have stated that borrowing levels were actually ‘better than expected.’
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The impact of Covid
The impact of Covid has been tremendous in many ways, not least when it comes to finances. The government has had to spend a fortune to prop up the economy, keep businesses afloat, and deliver the furlough scheme, without which enormous numbers of people would have lost their jobs. In addition, they have developed other schemes such as the SEISS for those who are self-employed and suffered a loss in business and income due to the pandemic.
Speaking to the BBC, Paul Johnson from the Institute for Fiscal Studies said, "The big story in a sense is they [the borrowing figures] are £250bn more than a year ago. And that, of course, is because of to some extent the recession of the last year but mostly because of the huge amount of additional government spending to support the economy over the last year."
As a result of the pandemic, additional support for individuals and businesses led to an increase in government spending of more than £203 billion, equating to 27.5%. Also, receipts of National Insurance and tax plummeted by nearly £35 billion, a 5% drop on the previous year.
In addition, ONS data showed that public borrowing as a percentage of GDP rocketed to 14.5%. This has resulted in the highest public borrowing figure since the end of WW2 when borrowing hit record highs of 15.2%.
An unavoidable situation
While the figures certainly look bleak, officials have said that this was an unavoidable situation. One economist, Michael Stelmach from KPMG, said that had the various measures not been taken, it would have left the nation in a far worse state in the long term.
He stated, "Rising debt is largely an unfortunate consequence of the government's focus on shielding the economy as much as possible from the impact of Covid-19. However, doing otherwise could have created long-lasting scars which would be far worse for fiscal sustainability."
The good news is that the figure that has been released is considerably lower than the forecast made in March. According to the ONS, the figure is over £24 billion lower than the predicted figure given by the Office for Budget Responsibility.
