Covid pushes UK government borrowing to peacetime record of £303bn

Figure at highest level since end of second world war but deficit was less than forecast for 2020-21

The UK government was forced to borrow a peacetime record of £303bn to combat Covid-19 in the first full financial year of the crisis but the total was lower than originally feared, official figures have shown.

Despite a £28bn gap between state spending and tax receipts in March, the Office for National Statistics (ONS) said the deficit for the 2020-21 year was £24bn less than the £327bn pencilled in at the time of the budget by the Office for Budget Responsibility (OBR).

As a percentage of national output, borrowing in the year between April 2020 and March 2021 stood at 14.5% – the highest since the financial year ending in March 1946, a period that covered the final few months of the second world war.

UK government borrowing hit a peacetime record of £303bn in the first financial year of the crisis
Standfirst ...
Guardian graphic | Source: ONS

Higher government spending was responsible for the bulk of the £246bn increase in borrowing compared with the previous year, although the ONS said tax receipts had also fallen. Government debt – borrowing that has accumulated over the years – stood at £2.14tn at the end of March, almost 98% of national income.

Isabel Stockton, a research economist at the Institute for Fiscal Studies thintank said the debt was perfectly manageable given the lowest interest rates in history but that the government could run into problems were borrowing costs to rise.

“While the most recent budget plans suggest a return to the government borrowing only to pay for investment spending by 2025–26 this depends on a swift recovery, big tax rises and very tight spending. There is a good chance that at least one of these will not happen,” Stockton added.

The ONS’s initial borrowing data will eventually be revised to take account of write-offs on loans to companies affected by the economic disruption caused by the pandemic. According to OBR estimates, these are on course to be just over £27bn.

Commenting on the figures, the OBR said the £303bn deficit was roughly double the previous annual record of £158bn set during the financial crisis of the late 2000s. “The surprise relative to our forecast is largely due to spending on pandemic-related programmes coming in below our downwardly revised forecast. Receipts were only modestly stronger than anticipated,” it said.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Borrowing in March alone was £28bn compared with £7bn in the same month a year ago. The ONS said it was the highest March figure since monthly records began in 1993.

Samuel Tombs, an economist at Pantheon Macro, said central government tax receipts for 2020-21 were, at £722.8bn, slightly higher than the OBR’s £718.6bn forecast, while central government spending was £11bn lower at £1,033bn.

“Government departments appear to have underspent relative to their allocated budgets to an even greater extent than normal, especially on public health,” he said.


Larry Elliott Economics editor

The GuardianTramp

Related Content

Article image
UK borrowing surges as Covid pushes national debt to record £2.024tn
August’s near-£36bn borrowing figure follows unprecedented government spending

Phillip Inman and Nazia Parveen

25, Sep, 2020 @9:54 AM

Article image
Covid pushes UK government borrowing to record February high
Figures also appear to confirm that economic recovery will be faster than forecast

Phillip Inman

19, Mar, 2021 @5:23 PM

Article image
UK economy poised to recover after Covid-19 second wave
Our latest snapshot of key economic indicators shows the deficit soaring but unemployment holding steady

Richard Partington Economics correspondent

31, Mar, 2021 @5:00 AM

Article image
New Covid variant and looming Brexit disruption deepen UK economic gloom
Our latest snapshot of key economic indicators show retail sales falling, job losses soaring, GDP growth and stock market stalling

Richard Partington Economics correspondent

23, Dec, 2020 @12:00 PM

Article image
UK borrowing falls as debt interest payments jump to £8.7bn
As economy reopened, government’s budget deficit reached £22.8bn in June, says ONS

Richard Partington Economics correspondent

21, Jul, 2021 @7:33 AM

Article image
UK's economy suffers in November but Covid vaccine hopes ease gloom
Our latest snapshot of key economic indicators shows travel down and inflation up amid double-dip recession

Richard Partington Economics correspondent

27, Nov, 2020 @6:00 AM

Article image
Fall in UK tax receipts and business support fuel record October borrowing
Monthly borrowing hits £22.3bn as Covid crisis forces debt pile up to highest proportion of GDP since 1960s

Phillip Inman and Graeme Wearden

20, Nov, 2020 @10:15 AM

Article image
UK unemployment reaches four-year high in Covid-19 lockdown
Jobless rate rose to 5%, or 1.7 million people, in three months to the end of November

Richard Partington Economics correspondent

26, Jan, 2021 @10:57 AM

Article image
The Brexit economy: looming rate rise clouds outlook as inflation dips
‘The beast from the east’ blew the UK economy off course, further complicating an already complex picture

Richard Partington

26, Apr, 2018 @12:21 PM

Article image
UK budget deficit narrows to lowest level September since 2007
Inflation-fuelled rise in VAT receipts cheers chancellor ahead of budget but analysts warn of OBR cut in forecasts and further Brexit uncertainty

Phillip Inman

20, Oct, 2017 @3:35 PM