Government interest payments on borrowing soar as inflation rises
22 February 2022, 17:54
The ONS said interest payments rose to the highest January level in 25 years but self-assessment tax receipts increased.
Soaring inflation led to interest payments on Government debt rising to the highest January level since records began nearly 25 years ago.
Interest payments reached £6.1 billion in January compared to just £1.6 billion in the same month a year ago as the RPI measure of inflation used on Government debt payments hit 7.8%.
The rise is still off from the all-time record of £9 billion in interest rate payments made in June last year but the interest rate is expected to rise further, with inflation still growing.
The latest rise in interest rate payments comes as the Office for National Statistics (ONS) revealed that tax returns brought in £18.4 billion in January, compared with £16.4 billion in January 2021.
Increases in the tax take helped borrowing levels swing to a surplus of £2.9 billion, compared to a deficit of £2.5 billion a year earlier.
This was above expectations but remains £7 billion below the surplus recorded in January 2020 before the pandemic.
The ONS added that public sector borrowing from the end of March to December was £138.5 billion – the second highest since records began in 1993.
The data also showed that public sector debt, excluding public sector banks, was £2.32 trillion at the end of the month, or around 94.9% of gross domestic product (GDP).
Chancellor of the Exchequer Rishi Sunak said: “We provided unprecedented support throughout the pandemic to protect families and businesses and it has worked, with the UK seeing the fastest economic growth in the G7 last year.”
The UK saw the biggest economic fall during 2020 of all G7 countries before swinging to the biggest growth in 2021.
Mr Sunak added: “But our debt has increased substantially and there are further pressures on the public finances, including from rising inflation.
“Keeping the public finances on a sustainable path is crucial so we can continue helping the British people when needed, without burdening future generations with high debt repayments.”
Isabel Stockton, a research economist at the Institute for Fiscal Studies, said the figures suggest that borrowing remains likely to come in below that forecast in the Budget.
She added: “Some have suggested that lower-than-expected borrowing figures should lead the Chancellor to provide more support to households, on top of that announced earlier this month, to cope with the fast-increasing cost of living. In truth, the latter has little to do with the former.
NEW: Government borrowing on a 12-month rolling basis continues to fall from its record high of 15%, according to data released today by the @ONS . But at 8.1%, it is still closer to its previous peak during the financial crisis in 2010 than to long-run averages. pic.twitter.com/5szdxA0kbW
— Institute for Fiscal Studies (@TheIFS) February 22, 2022
“The Chancellor could certainly delay tax rises, uprate benefits with a more up-to-date measure of inflation in April, or implement further one-off support.
“However, tax rises were introduced to tackle long-run challenges, notably in health and social care, which have in no way become less pressing.
“If the Chancellor decides to delay tax rises this spring, he will need to find ways to commit credibly to other ways of dealing with these spending pressures.”
James Smith, research director at the Resolution Foundation, pointed out that tax receipts this year so far are more than £25 billion higher than forecast by the OBR last Autumn.
He added: “There are some signs of faster earnings growth for higher earners, who pay a higher marginal rate of tax.
“The warning in an otherwise welcome set of figures is the £6.1 billion increase in debt repayments stemming from higher inflation.”
