Rishi Sunak faces new headache with UK government debt much higher than expected

London — British government borrowing in the recently ended 2021/2022 financial year was almost 20% higher than forecast by the country’s budget office in March, according to figures published on Tuesday.

The data underscored the challenge for finance minister Rishi Sunak who is under pressure to give new help to households and businesses hit by surging inflation, but who says he wants to fix the public finances after his Covid-19 borrowing surge.

Sunak responded to the figures by saying he was committed to helping people face their immediate cost of living pressures but repeated his plan to tackle Britain’s debt stockpile which has jumped to more than £2-trillion.

“Public debt is at the highest levels since the 1960s and rising inflation is pushing up our debt interest costs, which mean we must manage public finances sustainably to avoid saddling future generations with further debt,” he said.

British public-sector net borrowing, excluding state-owned banks, totalled £151.8bn in the 2021/2022 financial year. In March, the Office for Budget Responsibility said it expected borrowing in 2021/2022 to be £127.8bn.

The government’s debt office said it was increasing its borrowing plans for the 2022/2023 year by almost £14bn to just under £162bn.

In March alone, borrowing was £18.1bn, the Office for National Statistics said on Tuesday, below the average forecast of a deficit of £19.25bn in a Reuters poll of economists.

An ONS official said the 2021/2022 overshoot was largely due to higher public spending on goods and services and investment — both of which were likely to be revised in future — while receipts were largely in line with the OBR's forecasts.

The deficit for the 12 months to March was less than half its level in the previous financial year when Britain borrowed the most it ever has in peacetime to fund its huge support for the economy during the worst of the Covid-19 pandemic.

Nonetheless, the most recent figure was still the third-highest on record since records began in 1947, after the first year of the coronavirus pandemic and the 2009/2010 financial year, during the global financial crisis.

Fast-rising inflation is pushing up the cost of servicing Britain's government debt, around a quarter of which pays an interest rate tied to the rate of retail price inflation.

Debt interest payments of almost £70bn in the 2021/2022 year were up by nearly 80% from a year earlier.

Public-sector net debt, excluding state-owned banks, totalled £2.34-trillion or 96.2% of GDP, the ONS said. 

Reuters