The UK government borrowed more than expected at the start of the 2023-24 financial year as rising social security benefits and debt interest pushed up public spending.
Public sector net borrowing stood at £25.6bn in April, higher than the Office for Budget Responsibility’s estimate of £22.4bn and £11.9bn more than a year earlier.
Tax receipts were strong, but increases in revenues were exceeded by additional costs of energy support schemes, the highest debt interest payment on record for the month of April and a significant increase in the cost of social security payments, most of which were uprated by a 10.1 per cent rise in April to reflect higher inflation.
Although the trends in public finances are difficult to interpret at the start of a financial year, Jeremy Hunt, chancellor, issued a statement on Tuesday, highlighting the still-high levels of government borrowing.
“Debt and borrowing remain too high now, which is why it’s one of our priorities to get debt falling,” Hunt said, pointing to official forecasts that show public debt as a share of national income is set to fall later this decade.
Although the April data was disappointing for the chancellor, better news came in revisions to the deficit in the 2022-23 financial year.
The Office for National Statistics said it now estimated the government borrowed £137.1bn last financial year, £2.1bn less than the previous estimate and £15.3bn lower than the OBR’s estimate for the year in the March Budget.
Compared with April 2022, income tax and corporate tax revenues were strong with increases of 7.8 per cent and 7.7 per cent respectively.
National insurance receipts were down because the revenues were compared with last April when a 1.25 percentage point increase in employee and employer rates had been imposed, before the government’s U-turn in the autumn.
More worrying for ministers will be the 0.4 per cent annual increase in value added tax receipts in April, far below the rate of inflation, which stood at 10.1 per cent in March. This suggests consumers were beginning to tighten their belts and spending more of their incomes on food, which is not subject to VAT.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures were worse than expected, but there had often been significant volatility in the signals given by these statistics early in the financial year.
“We doubt any alarm bells are ringing at the Treasury at this stage,” he said.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the weak figures were unlikely to stop Hunt offering tax giveaways before the next election. “We suspect that much of what the chancellor gives away will probably be taken away once the election is over, regardless of whether the Conservatives or Labour are in power,” she added.