Government borrowing falls but interest payments bite

Danni Hewson
23 June 2022

•    Government borrowing in May down £4bn on the same time last year
•    Tax receipts up by £3.4bn year-on-year 
•    Day-to-day spend still higher than receipts coming in
•    Debt interest payments up £3.1bn compared to the same period last year

Danni Hewson, AJ Bell financial analyst, comments on Public sector finances:

“There is nowhere inflation is not making its presence felt and the hike in interest payments on the government’s debt mountain is a prime example – a hike of 70% compared to the same period last year, a record for the month thanks to all those index-linked gilts. With inflation already at a 40-year high and the expectation that the peak is still to come, the OBR is forecasting that the cost of servicing the debt will hit £87bn this financial year, a cautionary note that is undoubtedly stuck to every whiteboard in the Treasury. 

“The tax take has gone up significantly thanks to a mix of VAT returning to normal levels on hospitality, extra cash from the uplift in National Insurance and a housing sector that’s still simmering despite all the headwinds, as well as a workforce back in business. But any household pouring over their own books will know that a budget that’s still got more going out than coming in is one that’s not healthy or sustainable, and borrowing in May was higher than had been anticipated. 

“But with talk of recession getting louder any mention of ‘austerity’ won’t be welcome. People are feeling the pinch, the Government has already stepped in with billions of pounds worth of support but there are plenty of voices warning that the help might not be enough to get households through what could be a long, cold winter. Pay is the topic du jour and one that’s not going to go away. Employers are in a sticky situation, if they don’t offer their workforce an increase that covers the worst of the inflation uplift they risk good people jumping ship or becoming embroiled in drawn out disputes that spill over into strike action.

“What is responsible – helping people now or helping the people in the future? The past couple of years have been trying and expensive but the next months are shaping up to be more uncomfortable than anything Covid threw at us.”

Danni Hewson
Financial Analyst

Danni spent more than 19 years at the BBC, presenting and reporting on business news across a variety of programmes – including BBC Breakfast, BBC News Channel, BBC Look North and latterly Radio 5 Live’s flagship business programme ‘Wake up to Money’. She is now responsible for producing analysis and commentary across a broad range of subjects at AJ Bell, from financial markets, to economics and personal finance.

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