The UK government borrowed about £13bn less than expected last year, official figures show, despite the budget deficit reaching the fourth-highest level on records dating back to 1946.
The Office for National Statistics said the gap between the state’s revenues and its spending was estimated at £139bn in the 12 months to March, an increase of more than £18bn from a year earlier.
However, the figure is lower than the £152bn forecast made by the Office for Budget Responsibility (OBR) alongside the chancellor’s budget last month. Both spending and receipts came in lower than anticipated, with a particularly significant spending undershoot.
Analysts said the better than expected figures could provide Jeremy Hunt with wriggle room to cut taxes or increase spending before the next election.
“We wouldn’t be at all surprised to see a further fiscal loosening in the autumn statement,” said Ruth Gregory, the deputy chief UK economist at the consultancy Capital Economics.
However, the chancellor said “we cannot borrow forever”, adding that the government had a clear plan to get debt falling.
“These numbers reflect the inevitable consequences of borrowing eye-watering sums to help families and businesses through a pandemic and Putin’s energy crisis,” he said.
The snapshot showed the national debt – the sum total of every budget deficit – increased to £2.5tn, or about 99.6% of gross domestic product (GDP), the highest ratio since the early 1960s.
It comes after a rise in government spending last year to support households and businesses struggling with soaring energy bills amid the cost of living crisis, with support payments totalling £41.2bn in the year to March.
Inflation has risen to the highest level for four decades in the aftermath of the Covid pandemic and Russia’s invasion of Ukraine, with the measure for the annual rise in living costs at 10.1% in March.
However, the latest figures showed tax receipts rose by almost £70bn, or about 10.5% from a year earlier, driven by tax increases launched by the government and the effect of high inflation on the public finances.
It comes as Rishi Sunak faces pressure from business leaders and the right flank of his party to cut taxes, as his Conservative government oversees an increase in the amount of tax paid as a share of the economy to the highest sustained level in 70 years.
Strong growth in VAT swelled the government’s coffers, as soaring prices for goods and services pushed up the value of tax paid by consumers. Income tax receipts rose by almost 11%, boosted by self-assessed taxes, while corporation tax was up almost 15%, driven by the government’s windfall tax on North Sea oil and gas producers.
The government also brought in almost £17bn in additional compulsory social contributions, helped by payments for the now-cancelled health and social care levy between April and October 2022.
However, the tax rise failed to offset the shortfall from higher state spending and inflation hitting the public finances. Fuelled by inflation driving up interest payable on index-linked government bonds, the interest on the UK’s national debt rose by £106.6bn, an almost 47% increase on a year earlier.
Britain’s economy has performed better than previously feared so far this year, helped by cooling global energy prices, as well as resilient consumer spending backed by households running down their savings, and government support for living costs.
Borrowing is expected to fall this year as ministers scale back levels of support, but the OBR forecasts that the budget deficit – the gap between public spending and receipts – will not return to anywhere near the levels seen before the Covid pandemic until at least 2027.
Sunak has made reducing the national debt one of his five main priorities for this year, alongside halving inflation, growing the economy, cutting NHS waiting lists and passing laws to stop small boat crossings.
The national debt has risen sharply in recent years after a series of economic shocks. Having stood at about 35% of GDP before the 2008 financial crisis, it rose to 64.5% in 2010 in the final year of the last Labour government. Debt levels were then steadily ratcheted higher under the Conservatives to reach almost 85% of GDP before the start of the Covid pandemic.
In last month’s budget, the OBR said Hunt was on track to meet self-imposed targets for debt to fall as a percentage of GDP by a margin of £6.5bn in the final year of its forecast – the smallest amount of headroom any chancellor has set aside since the OBR was established in 2010.
