UK public borrowing fell in August as the economy recovered but higher inflation pushed up the cost of public debt, official figures showed.
Public sector net borrowing was £20.5bn, down by £5.5bn from a year earlier, the Office for National Statistics said. The reading was slightly lower than the £21.6bn forecast by the Office for Budget Responsibility but it was well ahead of economists’ average £15.6bn estimate in a Reuters poll.
Interest paid on public debt rose to £6.3bn from £2.9bn a year earlier, outstripping the OBR’s £1.6bn forecast. That result will fuel warnings that the government may not be able to borrow cheaply in future.
The figures give Chancellor Rishi Sunak extra fiscal room as he prepares his autumn statement for 27 October but the Treasury has said it is concerned about the potential effect of higher inflation on the cost of repaying public debt. Sunak says he wants to get the public finances under control, suggesting a return to more austere policy as the worst effects of the pandemic recede.
Martin Beck, senior adviser to the EY Item Club, said: “While both revenues and spending have performed better than the OBR anticipated, receipts are responsible for the bulk of the borrowing undershoot. This reflects the recovery in activity being much stronger than the OBR’s very cautious near-term forecast.”
After the government spent more than £400bn supporting the economy during the Covid-19 crisis, public sector net debt excluding public sector banks was £2.203trn at the end of August or 97.6% of GDP, the highest ratio since March 1963, the ONS said.
Opponents of the Treasury’s orthodox view of the public finances argue that much of the government’s debt is owed to the Bank of England and that high borrowing is not the threat to the economy portrayed by the Treasury and some economists.
Richard Murphy, a professor of accounting at Sheffield University, said: “Well over £800bn of the supposed debt is owned by the government. So the actual supposed debt figure is about £1,400bn at most. And that just represents savings held with the government, so it’s not really debt at all.”