UK Budget Deficit Surges On Covid-19 Support Schemes

The UK budget deficit surged to the third highest level on record in December as the government stepped up measures to support households and businesses amid the pandemic, official data revealed Friday.

Public sector net borrowing, excluding public sector banks, totaled GBP 34.1 billion in December, which was GBP 28.2 billion more than in the same period last year, the Office for National Statistics reported.

This was both the highest December borrowing and the third-highest borrowing in any month since monthly records began in 1993.

Government incurred GBP 10 billion additional expenditure on coronavirus job support schemes. Altogether, government spent GBP 86.2 billion on day-to-day activities in December.

Meanwhile, central government tax receipts fell GBP 1.4 billion to GBP 43.6 billion in December.

December's jump in borrowing is likely to set the tone for the next few months as the third Covid-19 lockdown keeps many businesses closed and will only increase talk of how to pay for the crisis, Thomas Pugh, an economist at Capital Economics, said.

However, the economist said Chancellor Rishi Sunak should resist the urge to try to reduce the budget deficit at the next Budget on March 3, and instead focus on continuing to support those areas of the economy that need it.

During April to December period, PSNB increased by GBP 212.7 billion from the same period last year to GBP 270.8 billion, the highest deficit in any April to December period since 1993.

The independent Office for Budget Responsibility had earlier estimated a deficit of GBP 393.5 billion for the financial year ending March 2021.

The ONS said extra funding required to support government coronavirus support schemes combined with reduced cash receipts and a fall in GDP have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s.

In the first nine months of the financial year, public sector net debt reached GBP 2,131.7 billion, or around 99.4 percent of GDP.