UK borrows another £34bn as chancellor vows return to 'sustainable footing'

The UK government borrowed another £34bn ($46.5bn) in December.

The Office for National Statistics on Friday said public sector net borrowing was £34.1bn last month, an increase of more than 470% compared to December 2019’s figure.

Last month’s borrowing marked the highest December on record and the third highest month of borrowing since records began in 1993.

Public finance records have repeatedly tumbled during the COVID-19 crisis. Tax income has fallen while government spending has surged due to targeted support to keep the economy afloat. The government has been forced to borrow eye-watering sums as a result.

The government borrowed £270bn between April and December 2020 and the state’s cash requirements last year were nearly double the previous record total. The Office for Budget Responsibility has said government borrowing could reach almost £400bn by March.

“This substantial increase largely reflects the impact of the pandemic on the public finances, with the furlough schemes alone adding £67.6 billion to borrowing in the financial year-to-December 2020,” the ONS said.

The government spent £10bn on the furlough scheme in December alone, ONS data showed.

December’s figure was higher than expected. Economists had forecast borrowing of £32.3bn, up from £30.8bn in November.

The above-expectations figure takes the UK’s national debt to £2.13tn, equivalent to 99.4% of GDP. The ONS said that was the highest debt-to-GDP ratio since 1962.

Sky-high borrowing and debt figures will fuel the ongoing debate about how to manage public finances. Chancellor Rishi Sunak has repeatedly signalled a desire to begin bringing UK finances back towards a more sustainable footing as soon as possible and repeated that call on Friday.

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“Since the start of the pandemic we’ve invested over £280bn to protect jobs and livelihoods across the UK, and support our economy and public services,” Sunak said in a statement.

“This has clearly been the fiscally responsible thing to do. But, as I’ve said before, once our economy begins to recover, we should look to return the public finances to a more sustainable footing.”

Reports suggest the chancellor may introduce tax rises as soon as the March budget.

However, business groups want the government must spend more to keep the economy afloat. Several support programmes — such as furlough and government-backed business loans — are due to remain in place until the spring but businesses want support to be extended even further given the uncertainty around lockdown.

“Public borrowing will fall sharply from about 20% of GDP this year to between 8% and 10% in 2021/22, if the government stops the furlough and self-employment income support schemes in the spring, and healthcare spending declines,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“We doubt that the Chancellor will go a step further in the Budget on March 3 and push through large immediate tax rises or non-health spending cuts. But the Treasury will not tolerate a 10% deficit indefinitely.”

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