The drop in public borrowing announced today is set to be welcome news for Chancellor of the Exchequer Rishi Sunak as he prepares next week’s Budget.
Borrowing fell to £21.8bn in September from £28.8bn in the same month of 2020, and almost halved to £108.1bn in the first six months of the current 2021/2022 financial year, according to figures from the Office for National Statistics.
The fall in borrowing followed the end of financial support measures related to the COVID-19 pandemic, but the six-month figure was still over three times higher than before the pandemic.
Public sector net debt now stands at £2.219trn, equivalent to 95.5% of gross domestic product (GDP).
September’s borrowing figure was 16% below the Office for Budget Responsibility’s £25.9bn forecast.
The forecasts in the 27 October Budget are expected to show that borrowing in the current financial year will be around £40bn below the forecasts made in March, on the back of faster economic growth.
In response to the data, Sunak said he plans to reduce borrowing in the next financial year. He is expected to cut spending for many government departments after the high costs of the pandemic.
"At the budget and spending review next week I will set out how we will continue to support public services, businesses and jobs while keeping our public finances fit for the future," Sunak said.
Reuters reported that some economists believe that reducing spending is a risk for the economy, which has slowed markedly in recent months, while COVID-19 cases are now rebounding.
"The rumours are that the Chancellor will still keep a very tight grip on the public finances in next Wednesday's budget to try and bring down borrowing even quicker and build a fiscal war chest to deploy ahead of the 2024 election," said Paul Dales, chief UK economist at Capital Economics.
Samuel Tombs at Pantheon Macroeconomics broadly agreed, saying that with borrowing in the second half of the fiscal year likely to broadly match the level anticipated by the OBR in the March Budget, Sunak is not likely to relent on planned tax rises or tight controls on departmental expenditure.
"We think the OBR likely will revise down its estimate of long-term 'scarring' to potential GDP only to 2.5%, from 3.0%. As a result, the forecast for tax revenues in the mid-2020s will rise only modestly. At the same time, the OBR will revise up its forecast for debt interest payments, to account for the rise in RPI inflation and expectations for Bank Rate (though the September 24 cut-off for its forecasts means much of the impact of the recent rise in market rates will be missed)," Tombs said.
"Accordingly, the Chancellor likely will not have material wiggle room in meeting his new fiscal target, which is widely expected to be to achieve a balanced current budget in three years’ time. What’s more, with the next general election unlikely to be held until 2024, it is too early in the political cycle for tax cuts. As such, we expect the Budget to be devoid of measures that would significantly ease the fiscal squeeze that households and firms are set to endure over the months ahead."