The UK government borrowed £139.2 billion in the 2022-23 financial year, well below official forecasts, in a development that opens the way for possible tax cuts later in the year.
The borrowing figure, published by the Office for National Statistics on Tuesday, was £13.2bn lower than expected last month – largely due to lower-than-expected public spending.
The Office for National Statistics estimated that public spending for the financial year was £17.2 billion lower than the Office for Budget Responsibility forecast – despite £41.2 billion in energy costs being subsidized to households and businesses.
Responding to the figures, Jeremy Hunt called the level of support during last year’s energy crisis “surprising”, blaming the support for an increase in the level of borrowing by £18.1 billion compared to 2021-22.
But Ruth Gregory, deputy UK chief economist at Capital Economics, said an improvement in government finances would tempt the chancellor to give gifts in an autumn statement later this year.
“With the next election fast approaching, we wouldn’t be at all surprised to see more fiscal easing,” she said.
The recovery was even more impressive, with government borrowing for the month of March reaching the second-highest level in the month since records began in 1993.
Tuesday’s figures show the government cut the country’s fiscal deficit from a peacetime record of 15 percent of gross domestic product in 2020-21, when the pandemic imposed massive support for households and businesses, to 5.5 percent in 2022-23.
However, it also revealed that government revenue was £4.1 billion lower than the Balance Sheet Office’s forecast for 2022-2023.
This indicates that while revenues rose by more than 10 percent in 2022-23 on the back of economic recovery and high inflation, economic performance has not been as buoyant as the FCA had predicted.
Government borrowing is expected to decline significantly in the current fiscal year as the government cuts energy subsidies, lower inflation reduces the burden of government debt service and taxes continue to rise. But the Office for Budget Responsibility does not expect the deficit to fall below £100bn until 2024-25 at the earliest.
The government aims to reduce borrowing to less than 3 percent of GDP within five years. The Office for Budget Responsibility expects this target to be achieved relatively comfortably with borrowing falling to 3.1 percent of GDP by 2024-25 on the back of restrained public spending and higher taxes.
Some economists doubt that borrowing will drop as expected over the next two years. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said borrowing is likely to stabilize around 4 percent of GDP. “The Conservatives will likely ease fiscal policy in 2024 in the run-up to the next general election, which must take place by January 2025,” he said.
The new figures in the government balance also showed that the public sector has much more liabilities than its assets.
The Office for National Statistics said public sector net wealth was running a deficit of £605.8 billion at the end of March, indicating that the government’s debt exceeded its assets, including all non-financial assets, such as the roads and buildings it owns.
The last time net worth was in surplus was in 2009-10, but economic hardships since the financial crisis, including the pandemic, have now left debts far outpacing assets with public sector net worth declining by £70.6bn in 2022-23.