Britain's national debt is now nearly 100 per cent of GDP. Photo / NZPA
Britain's national debt is now nearly 100 per cent of GDP. Photo / NZPA
Borrowing by the British state rocketed to a record £127.9 billion ($245b) in the three months to June as the public finances were wrecked by collapsing tax revenues and a spending spree to fight Covid-19.
The quarterly deficit is the largest since monitoring started in 1993, the Office for National Statistics said, and double the entire level of borrowing for the previous financial year.
It dwarfs even the worst days of the financial crisis and is likely to spark fears of brutal cuts and massive tax rises ahead as Chancellor Rishi Sunak launches a departmental spending review.
Last month alone, Treasury borrowed £35.5b, making it the third-biggest month of borrowing ever. The only two bigger months were April (£46.9b) and May (£45.5b).
The national debt now totals £1.98 trillion, or 99.6 per cent of GDP - its highest level since the 1960s.
The surge in debt has been triggered by unprecedented efforts to protect the economy from meltdown as Covid-19 hit and business were ordered to close.
Of the £80.5b spent in June, almost £10b went on the furlough scheme and support for self-employed people unable to work. So far the schemes have cost £37.6b, covering 9.5m employees and 2.7m who work for themselves.
Costs up, income down
At the same time tax revenues plunged by a fifth. VAT receipts were cut almost in half, tumbling to a decade low of £7.1bn for June. Companies had the option of deferring VAT payments for the second quarter, hitting revenues but hopefully boosting their prospects for longer-term survival.
Those numbers are based on the expectation that deferred bills will be paid this year. In terms of cash paid to Revenue and Customs so far and once VAT repayments are counted, net domestic VAT receipts were minus £744m last month. It was the third consecutive month in which more money was paid out than received on VAT.
Corporation tax receipts fell by almost a fifth to £3.7b, and pay-as-you-earn tax slipped by a more modest 1.6pc, to £13.6b as millions of workers on furlough took a 20 per cent pay cut.
With pubs closed until this month, alcohol duty brought in just over £700m, down 25 per cent on June last year.
Fuel duty and stamp duty on property sales were down by almost a third, though in each case that is an improvement on the drop of more than 50 per cent in May as activity returned to the nation's roads and its housing market.
Britain's Chancellor of Exchequer Rishi Sunak is expected to spend even more money before the year is over. Photo / AP
Economists believe Chancellor Rishi Sunak will announce more spending this year, pushing the deficit up even further. The Institute for Fiscal Studies (IFS) has warned the Treasury could take on £500b of extra debt over this year and next.
Benjamin Nabarro, economist at Citi, expects another £25b to be spent in the northern autumn through income tax cuts, more support on business rates and jobs and an expansion of debt relief for firms forced to take out emergency loans.
Eventually more control of the purse strings will be required. Sunak has hinted this could involve tighter budgets for some departments in a spending review unveiled on Tuesday.
Ben Zaranko, of the IFS, said: "The Chancellor has opened the door to a less generous funding settlement for public services than the one he committed to in March.
"Given the large amounts already promised for priority areas like the NHS, schools and police, and Rishi Sunak's emphasis on the need for 'tough choices', another round of budget cuts for other, lower priority departments is a very real possibility."
Promises that the taxpayer will cover bank losses on coronavirus loans is also set to push up borrowing in future as firms fail to pay what they owe. So far those guaranteed loans have totalled £48.7b.
The extraordinary size of the tax, spending and borrowing numbers reflects the fast-moving nature of the pandemic, the scale of the recession and its associated policy response.
That means the precise numbers for each month's deficit will not be clear until some time later. May's borrowing number of £45.5b was revised down by the ONS by almost £10b from its initial estimate of more than £55b.
