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UK government borrowing almost 20% higher than forecasts

·Finance Reporter, Yahoo Finance UK
·3-min read
Government borrowing British Chancellor of the Exchequer Rishi Sunak speaks at Conservative Party Spring Conference in Blackpool, Britain March 18, 2022. REUTERS/Phil Noble
Government borrowing: Chancellor Rishi Sunak said that fiscal rules are being met. Photo: Phil Noble/Reuters

The UK government borrowed more than expected in March and has overshot its own watchdog's target by almost 20%, according to figures published by the Office of National Statistics (ONS).

In March the public sector borrowed £18.1bn, this is the second-highest March borrowing figures since 1993, but £8.8 billion less than March 2021.

UK public-sector net borrowing, excluding state-owned banks, totalled £151.8bn in the 2021/22 financial year.

Read more: UK public sector borrowing hits £2.9bn surplus in January

Last month, the Office for Budget Responsibility said it expected borrowing in 2021/22 to be £127.8bn, around 20% less.

The ONS said this was the third-highest financial year borrowing since records began in 1947, but less than half of the £317.6bn borrowed in the same period last year, amid the COVID pandemic.

Government borrowing drops by half, but remains close to all-time highs. Infographic: PA Graphics.
Government borrowing drops by half, but remains close to all-time highs. Infographic: PA Graphics.

Higher than expected borrowing followed a jump in interest payments on UK national debt. Interest payments rose by 52.8% to £2.9bn last month as soaring inflation pushed up costs.

Chancellor Rishi Sunak said: “Public debt is at the highest levels since the 1960s and rising inflation is pushing up our debt interest costs, which mean we must manage public finances sustainably to avoid saddling future generations with further debt.

“Despite global economic headwinds, we continue to meet our fiscal rules, showing our commitment to keeping the public finances sustainable while supporting the UK’s long-term growth and addressing the immediate pressures facing people with their cost of living.”

The UK national debt stands at £2.3trn, or 96.2% of GDP.

Meanwhile, inheritance tax receipts jumped to £5.5bn between April 2021 and February 2022, up £700m than in the same period last year.

Alex Davies, CEO and founder of Wealth Club said: “Tax on death is not just for the very wealthy. Rising house prices, especially in the southeast and London, have pushed many homeowners over the IHT threshold, not helped by the fact that both the nil rate band and residence nil rate band have been frozen until at least April 2026. The revenue generated from inheritance tax plays an important part in the government’s spending programme.”

Read more: UK borrowing jumps £347bn amid COVID pressures

Julia Rosenbloom, tax partner at Tilney Smith & Williamson, added: “The latest reported year-on-year rise in IHT collections will be welcomed by the Treasury that needs every pound it can get at the moment to pay for the government’s ambitious spending commitments against a backdrop of ongoing global uncertainty.

“Given that the Office for Budget Responsibility recently forecasted that the Treasury will receive £37bn in IHT payments over the next five years, now is the time for families to take action and look carefully at their tax planning. Even before any possible changes to IHT in the next Budget later this year, many people can expect to see increased IHT bills following the Chancellor’s decision to freeze both the nil rate band and residence nil rate band until at least April 2026.

"With rising property prices, more families are being brought into scope for IHT and this is forcing some to face difficult decisions – such as potentially needing to sell family homes to settle IHT bills.

“By taking professional advice and planning ahead, families may have an opportunity to reduce or eliminate their IHT bill through considering investing tax-efficiently and making gifts to family members.”

Watch: Spring Statement: Key takeaways from Rishi Sunak's speech

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