Lockdown ended, the economy reopened – and public sector borrowing went up. Provisional figures for 2022/23 released by the Office for National Statistics (ONS) this morning show that the government borrowed £139.2 billion. This is an increase of £18.1 billion on the previous year, when the economy was still being disrupted by Covid. The figure was made much worse by figures for March this year, when the government borrowed £21.5 billion – £16.3 billion more than in March 2022.
A huge surge in borrowing during the pandemic was to be expected. The government was, after all, paying the wages of 9 million people at one stage through the furlough scheme. Tax revenue was slashed as businesses were put into hibernation. But when the economy reopens, shouldn’t the public finances recover?
What makes the borrowing figures all the more remarkable is that Britain has not, at least not yet, fallen into recession. If you are running a deficit of £139.2 billion when the economy is growing, very slightly, it does not bear to think how big it would grow if we did fall into a recession and the government finances were pummelled from both directions: falling tax revenues on the one hand and rising welfare costs as workers lost their jobs on the other.
Were we not carrying the burden of debt, we could afford another two-thirds of an NHS
We are really back where we were in the dying days of Gordon Brown’s government: with a runaway deficit and a stagnant economy. The difference now is that overall debt is much higher at £2.7 trillion, equivalent to £95,000 per household, and so is the cost of servicing that debt. In 2023/24, the Office for Budgetary Responsibility (OBR) expects the government to have to spent £94 billion on debt interest – more than on defence or education. Were we not carrying the burden of debt, we could afford another two-thirds of an NHS.
The other big difference between now and the end of Brown’s time is that the political conversation has changed. Then, we had a government in waiting which was promising to make balancing the nation’s books a political priority. Now, the political will seems to have disappeared.
Quite the opposite, the anti-‘austerity’ lobby, seems to have prevailed. Where the furlough scheme left off, the Energy Price Guarantee has taken over. The state has taken it upon itself to subsidise consumption which it has never previously done. We have entered a new age of big government intervention which is beginning to look semi-permanent. Big state spending during the pandemic has created the expectation that the government will always be there to bail us out when the going gets tough, with the cost being put on future taxpayers.
Last September’s crisis, when the cost of servicing government debt soared as investors lost confidence in the government’s ability to repay it, brought down Liz Truss’ embryonic administration. Confidence was restored, but the new chancellor Jeremy Hunt only tackled the finance problem from one direction: by increasing taxes. He hasn’t so far offered much in the way of reining in public spending.
There is no meaningful programme to bring the public finances back into balance as there was in 2010 – not that George Osborne stuck to his programme. The question is, how much more will investors take before they start to panic once more at the government’s ability to keep its finances under control?
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