Government borrowing soars amid rising energy bills

The UK government borrowed £16.7bn in February, reaching the highest level for the month since records began in 1993, according to the Office for National Statistics (ONS). 

The figure marked a year-on-year increase of £9.7bn. 

The rise in public borrowing was said to be caused by spending on energy support schemes that aimed to help households and businesses cope with soaring energy bills. The cost of these schemes has totalled an estimated £34bn since they were first introduced in October.  

Nonetheless, the ONS has stressed that the interest paid on government debt was £6.9bn in February - £1.3bn less than a year earlier - due to changes in inflation rates.

“Borrowing is still high because we’re determined to support households and businesses with rising prices and are spending about £1,500 per household to pay just under half of people’s energy bills this winter," said chancellor Jeremy Hunt. 

“What will bring these costs right down is lower inflation, which is why it remains one of our top priorities to halve it this year, alongside growing our economy and reducing debt.”

During his Spring Statement, Hunt confirmed the government's intention to extend the energy price guarantee (EPG), which caps average household bills at £2,500, from April to June this year. The decision was a response to the UK’s deepening cost-of-living crisis, which has seen inflation hitting historic levels. 

The EPG had been expected to rise to £3,000 in April, threatening many vulnerable households. However, by the time the cap is removed in June, energy bills are expected to drop to around £2,200 a year due to falling wholesale gas prices.

Nonetheless, the government's £400 winter fuel payment will not be renewed, meaning households' costs will still rise in the short term.

The ONS said the February figure leaves the government with £20.2bn of headroom for borrowing in March.

The publication of the borrowing figures follows the Office for Budget Responsibility (OBR) reports, which recently cut its borrowing forecasts for the current financial year to £152.4bn. It also forecasted that the UK will avoid a "technical recession". 

Samuel Tombs, at Pantheon Macroeconomics, said the OBR’s "optimism" about the medium-term economic outlook is "misplaced" and stressed his belief that "the government will not stick to plans for a substantial fiscal consolidation over the coming years.”

Philip Shaw, an economist at Investec Economics, said the OBR’s updated borrowing forecast for 2022-23 of £152.4bn should be “easily achievable, despite the cost of the various energy support schemes and higher interest payments”.

“As things currently stand, borrowing should come down next year despite a period of economic weakness and a £22 billion tax giveaway, as previously announced tax increases (such as the 6p rise in Corporation tax) kick in and as the current energy support measures are not repeated," he said.

“The main political question is whether the deficit closes sufficiently to allow the chancellor a degree of tax largesse ahead of the next election. We suspect that somehow it will.”

The ONS also said that £1bn was raised through the new windfall tax on UK energy company profits. Tax income overall was also £5bn higher than a year ago at £77.8bn.

Nonetheless, the recent collapse of the Silicon Valley Bank, as well as the possible acquisition of Credit Suisse have raised concerns about the future global economic stability. 

Ruth Gregory, the deputy chief UK economist at Capital Economics, said: “The big risk is that a further escalation in the banking crisis causes a deterioration in the fiscal outlook, as the hit to the public finances from weaker economic growth is only partially cushioned by lower gilt [UK government bond] yields.”

In total, the public sector has borrowed £132.2bn so far in the 2022-2023 financial year, £15.5bn more than in the same period last year and the third-highest figure at this stage since records began.