Danni Hewson, AJ Bell financial analyst, comments on today’s government borrowing figures.
“There are glimmers of good news in today’s government borrowing figures. Whilst spend is still considerably greater than income, that income is recovering, up 7% compared to April last year. As the country heads to another “new normal” people are getting back in the car again, back to the pub again and back to the business of buying houses. Fuel Duty was up by more than a third compared to the same time last year as the first lockdown began. Alcohol Duty up 15% and Stamp Duty up a whopping 70% despite the holiday extension. And as the economy picks up so too has income tax, PAYE tax returns up 16% last month compared with April 2020.
“There is another quirk helping numb the pain of record debt levels and that’s interest rates. Despite national debt now standing at £2.71 trillion pounds up by more than £280bn compared to April 2020, its monthly interest bill was only £0.1bn higher last month than for the same period last year, fuelling economists rhetoric that recovery won’t require massive tax hikes or the salami slicing of spending. That spending is already falling as reopening continues apace.
“There are concerns. Borrowing was higher April than it was in March. Measures like furlough are still providing a huge amount of support and recovery is fragile. Consumer confidence that’s been boosting spend and investor sentiment will be shaken by news of new guidance for some areas seeing a high level of cases of the Indian Covid variant. Yes, recovery is fragile, and clarity is vital if it’s not to be derailed.”
