Government Borrowing Jumps by £18 Billion Owing to Interest Payments and Energy Bills Support

Undated file photo showing Sterling notes and coins. Dominic Lipinski/PA Media

Government borrowing jumped by £18 billion in the year to March 2023, with the figure blamed on rising interest rates and the cost of supporting energy bills.

The Office for National Statistics (ONS) said public sector borrowing reached £139.2 billion in 2022/23, the fourth-highest figure since records began and £18.1 billion more than in 2021/22, according to official figures.

But the Office for Budget Responsibility (OBR) predicted last month the figure would be £152.4 billion.

In November government borrowing rose to a record £22 billion.

In the last six months the government has shelled out £41.2 billion to support households and businesses with energy costs.

High inflation has also increased interest payments on public sector debt to £106.6 billion, 47 percent higher than the previous year.

Chancellor of the Exchequer Jeremy Hunt said, “These numbers reflect the inevitable consequences of borrowing eye-watering sums to help families and businesses through a pandemic and [Russian President Vladimir] Putin’s energy crisis.”

But he warned, “We stepped up to support the British economy in the face of two global shocks, but we cannot borrow forever.”

‘Reduce the Financial Pressure’

Hunt said, “We now have a clear plan to get debt falling, which will reduce the financial pressure we pass on to our children and grandchildren.”

The ONS said public sector net borrowing was £21.5 billion last month, £16.3 billion higher than a year ago and the second-highest March borrowing on record, owing to the energy support payments.

Public sector debt, excluding state-supported banks, reached £2.5 trillion at the end of March, which amounts to 99.6 percent of GDP.

This level of debt has not been seen since the early 1960s.

The public sector spent more than it received in taxes and other income last month.

It paid out £110.3 billion but received only £88.8 billion.

The amount borrowed last month was £14.5 billion more than in March 2020, at the start of the COVID-19 pandemic.

Chancellor of the Exchequer Jeremy Hunt leaves 11 Downing Street with his ministerial box, before delivering his Budget at the Houses of Parliament, London, on March 15, 2023. Stefan Rousseau/PA Wire

Energy bill support has seen government borrowing balloon since it was put in place last October to help households and businesses cope with rocketing gas and electricity bills following Russia’s invasion of Ukraine.

Hunt announced in last month’s spring Budget the energy price guarantee, which capped bills at £2,500 a year, will be extended for households for another three months, until June.

The former Chancellor, Sajid Javid, told LBC’s Nick Ferrari he was very confident Hunt and Prime Minister Rishi Sunak would resurrect the economy.

Javid said: “I know both Rishi and Jeremy very, very well. They obviously haven’t been there together in that role for that long ... they’ve done a terrific job already in stabilising the economy.”

He said, “They’ve set out their priorities when it comes to the economy, and in particular, investment, and I think if anyone can get the economy on a much stronger footing this is the dynamic duo that’s going to do it.”

The past financial year has seen two of the highest months for interest payments on government debt on record.

Debt interest payments stood at £3.9 billion in March, £400 million higher year-on-year, though far less than the £20 billion seen last June as inflation has been easing back from last year.

Government Is Bullish on Growth

Martin Beck, chief economic adviser to the EY Item Club, said the borrowing outlook for the year ahead would depend on economic output.

He said: “The OBR’s forecast for GDP in 2023–2024 looks too low. If this proves true, borrowing this year should be lower than expected. However, the impact of a stronger economy on borrowing in the short term would likely be temporary.”

Beck said: “Further ahead, the government’s room for manoeuvre on fiscal policy will be determined by whether the OBR is able to maintain its much more bullish view on medium-term growth compared to the position taken by the other official forecaster, the Bank of England.”

The British economy was already struggling with high inflation and energy prices when Liz Truss became prime minister in September 2022 and encouraged her Chancellor, Kwasi Kwarteng, to bring in a radical tax-cutting budget that worried the City of London and led to a big jump in interest rates.

Truss sacked Kwarteng and performed a U-turn in October 2022, scrapping most of the £43 billion worth of tax cuts, but it was not enough to save her reputation and she later resigned. She was replaced by Rishi Sunak, who she had defeated for the leadership of the Conservative Party last summer.

PA Media contributed to this report.