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Government borrowing eases in May but scars remain

Government debt is now at £2.2trn

Government borrowing dropped in May compared to 12 months ago, as lockdowns are easing and the UK continues its recovery.

Borrowing stood at £24.3bn, £19.4bn lower than May last year, as government spending continued to surpass tax income.

With measures such as the furlough scheme, borrowing has been reaching record levels.

Government debt is now at £2.2trn with all the borrowing that has occurred over the past year. This amounts to a rate of 99.2% of GDP, a rate last seen in the 60s.

The Office for National Statistics (ONS) reckons that the government borrowed £299.2bn during the financial year ending in March.

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Danni Hewson, AJ Bell financial analyst, comments on today’s government borrowing figures:

“How you look at today’s public sector finances depends if you are a glass half-full or empty person. On the one hand borrowing in May was down by more than £19 billion compared to the previous year, on the other it was the second highest figure for May since records began and almost £19 billion more than May 2019,” said Hewson.

“Income was up by £7.5 billion compared to the same time last year, helped along by a 133% increase in fuel duty and an almost 90% leap in stamp duty income but there’s still a huge gap between what’s coming in and what’s going out and interest payments on all that debt has risen substantially, up 26% year on year, though much of that rise is down to changes in RPI.”

“But the gap is narrowing as the economy heals. Furlough costs were down a whopping 75% as the country went back to work and, though it doesn’t help with tax receipts, the fact that income from alcohol duty was down 20% reflects changing fortunes as people are able to reengage with friends and family.”

“The pandemic has left big scars on the nation’s finances and reopening is a salve but one that needs careful application. Too much, too soon and those inflation worries that have caused so much concern will come to bear. Not enough, too slow, or if variants demand another reverse then there will be difficult conversations about spend vs taxation. But today feel like a glass half full day, more income, less spend and a gentle foot on the accelerator.”

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