Public sector borrowing jumps in April - ONS

22nd May 2024 08:28

(Sharecast News) - Public borrowing soared by more than expected in April, official data showed on Wednesday, on the back of lower National Insurance receipts.

According to the Office for National Statistics, public sector net borrowing (excluding public sector banks) rose £1.5bn year-on-year to £20.5bn, the fourth-highest April borrowing since monthly records began in 1993.

The only time borrowing was higher in April was during the pandemic, and when the Royal Mail pension scheme was transferred into the public sector.

The Office for Budget Responsibility had predicted borrowing would be £19.3bn in April.

Overall, central government receipts were £77.4bn, up £1.2bn year-on-year.

However, while tax receipts increased by £2.2bn, compulsory social contributions - which are primarily compromised of NI receipts - fell by £1.5bn to £12.7bn.

In the spring Budget, chancellor Jeremy Hunt cut the main rate of employee NI by 2p, from 10% to 8%, effective from 6 April 2024. He subsequently said the government would likely cut the rate further, should finances allow.

Danni Hewson, head of financial analysis at AJ Bell, said: "If you cut the amount of NI workers are paying into government coffers, it stands to reason that shortfall will have to be made up somewhere. In April it meant borrowing had to increase beyond what had been forecast, and more than needed this time last year.

"The overall tax take is up and interest payments on all that debt are down. But inflation-busting wage and benefit increases are putting additional strain on the public coffers.

"Further tax cuts may be a vote winner, but figuring out how to pay for them is surely the biggest issue on the table."

The EY Item Club said the new fiscal year had got off to a "disappointing" start.

Peter Arnold, chief economist, said: "[We] think this underperformance will continue through the rest of the financial year, given that gilt yields and Bank Rate are set to be higher than the assumptions used in the OBR's March forecast, implying higher-than-expected debt serving costs.

"Therefore, the scope for another tax-cutting fiscal event before the election looks limited, unless the chancellor opts to make further changes and askes the OBR to assume greater spending restraint."