IFS BRIEFING: Cash borrowing by the public sector was £89 billion in April 2020, far more than in any previous month on record

Friday, 22 May 2020 09:24

This morning, the Office for National Statistics published its monthly public finance release for April, giving us an initial snapshot of the public finances under lockdown. It throws the enormous impact of the restrictions on the public finances into sharp relief.

Commenting on the numbers, Isabel Stockton, research economist at the IFS, said:

“In April, the government borrowed more than in any previous month on record and more than forecast in the March Budget for the whole of 2020–21. The public health measures put in response to COVID-19, and the policy giveaways to help businesses and households through this challenging time, substantially depressed government receipts and pushed up government spending. Central government cash receipts in April 2020 were £25 billion lower than in April 2019. Over half of this decline was explained by VAT. Reduced consumer spending and the deferral scheme - enabling businesses to pay VAT later - meant that net receipts were below zero in April 2020, compared to £13 billion received in April 2019. Receipts of income tax, National Insurance Contributions and corporation tax were all also below their April 2019 level. Spending was pushed up by the Coronavirus Job Retention Scheme which in its current form is forecast to cost £14 billion a month.

There will clearly be a substantial spike in borrowing this year. What this means for policy will depend crucially on the shape and extent of the recovery that follows. If the increase in borrowing is a one-off then one option could be to manage down the elevated debt stock gradually over many years. Should higher borrowing endure – for example, because the economy doesn’t fully bounce back – then tax rises or spending cuts would be needed if borrowing is to be returned to its pre-crisis path. Any additional spending pressures arising from the current crisis would also put upward pressure on taxes.”

You can read the full briefing by Carl Emmerson and Isabel Stockton on the IFS website: https://www.ifs.org.uk/publications/14857