UK government borrowing hit its highest December level on record as spending soared in response to the coronavirus pandemic coupled with a steep drop in tax receipts.
The Office for National Statistics said borrowing hit £34.1bn last month, about £28bn more than the same month a year ago.
The increase took the government’s budget deficit – the gap between spending and tax receipts – to nearly £271bn for the first nine months of the financial year, a rise of more than £212bn compared with the same period last year, as the Covid-19 pandemic far outstripped the damage done by the 2008 financial crisis.
The Office for Budget Responsibility (OBR), the independent forecasting unit, has estimated borrowing will hit £394bn by the end of the financial year in March.
The latest rise in borrowing comes as government spending climbed in response to the second wave of the pandemic. The bill for coronavirus job support schemes, including the furlough scheme, in December was £10bn. There was also a bill of £9bn for vaccines, testing and PPE. Total spending was £86bn.
December’s borrowing pushed the national debt – the sum total of every deficit – to £2.1tn at the end of December, or about 99.4% of gross domestic product (GDP), the highest debt ratio since 1962.
Analysts said the furlough scheme alone cost the government £4.7bn in December, a figure that will rise significantly in January after the launch of tougher lockdown controls. However, the cost of inaction would have been mass unemployment and lasting scars on the economy that would have caused longer-term damage to the public finances.
Charlie McCurdy, a researcher at the Resolution Foundation, said: “This level of spending may be eye-wateringly large, but it is absolutely necessary in order to both tackle the virus, and protect families and firms from the crisis.”
Pressure is mounting on the chancellor to increase financial support to businesses and workers during the latest restrictions, as the pandemic edges Britain’s economy closer to a double-dip recession.
The Guardian revealed on Thursday that ministers were considering paying £500 to everyone in England who tests positive for Covid-19, in a dramatic overhaul of the self-isolation scheme and amid persistently high rates of infection. If adopted universally, that level of payments would cost more than £450m a week.
Despite record borrowing, economists, including those at organisations such as the International Monetary Fund, have argued that cutting government spending and raising taxes to reduce the deficit would derail Britain’s recovery. The cost to the government of the soaring national debt has also fallen to the lowest levels since the 1690s, helped by historically low interest rates and the Bank of England’s multibillion-pound quantitative easing bond-buying programme.
The chancellor, Rishi Sunak, said the government had invested more than £280bn in protecting jobs and livelihoods since the start of the pandemic. “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.”