Emergency pandemic measures led to a rise from £57bn to more than £303bn in 2020-21

The coronavirus pandemic forced the UK government to borrow more than at any time since the second world war, the Office for National Statistics said as it published the first provisional estimates of the public finances for the 2020-21 financial year.
Borrowing hit £303.1bn in the year ending in March, a jump of £246.1bn on the previous year when the figure was only £57.1bn.
Although historically large, the level of government borrowing was not as bad as had been feared. This prompted the Treasury to tell financial markets on Friday morning that it would issue £43.3bn less debt in 2021-22 than it had planned as recently as the Budget on March 3.
The lower than expected borrowing numbers did not diminish the scale of the deficit in 2020-21 as the economy reeled from the effects of coronavirus. Tax revenues fell while public spending on health services and furlough schemes surged.
The government borrowed 14.5 per cent of the value of everything produced in the UK economy last year, a figure that was last higher at the end of the second world war when it borrowed 15.2 per cent of gross domestic product.
The level of borrowing pushed the UK’s total accumulated public debt to 97.7 per cent of GDP, the highest level since the early 1960s.
Michal Stelmach, senior economist at KPMG, said the “meteoric rise” in government borrowing and debt was necessary to shield the economy from greater harm if it had not put in place emergency support schemes.
“Doing otherwise could have created long-lasting scars which would be far worse for fiscal sustainability,” he added.
The borrowing estimate for 2020-21 will rise in the months ahead when the ONS includes estimates for the likely losses the government will suffer on its loan schemes to businesses.
The ONS said the £303.1bn borrowing total for 2020-21 was lower than the Office for Budget Responsibility’s equivalent forecast of £327.4bn in the March Budget, which excluded expected losses on lending programmes.
The OBR itself acknowledged that its Budget forecasts were now clearly too pessimistic, saying its error came from putting too much emphasis on the Treasury’s allocations of funds, which ultimately were not spent.
But it added that the better news on 2020-21 borrowing did not mean its medium term expectation of significant scarring from the pandemic on the public finances was also too pessimistic.
Economists said the outlook for the public finances was significantly stronger because the economy was recovering rapidly and tax revenues had not been as hard hit as they feared during the pandemic.
Even with chancellor Rishi Sunak’s tax breaks for corporate investment this year to help the recovery, Paul Dales, chief UK economist at Capital Economics, said that borrowing was likely to “fall more quickly than most expect” in a strong recovery.
Isabel Stockton, research economist at the Institute for Fiscal Studies, sounded a note of caution, however. She said that getting the public finances back in shape by the middle of the decade would rely on the success of a swift recovery, big tax rises and very tight spending.
“There is a good chance that at least one of these will not happen,” she added.
The chancellor is expected to outline a new fiscal framework as part of the autumn Budget. But Jagjit Chadha, director of the National Institute for Economic and Social Research, said on Friday that the Treasury was still wedded to a lack of transparency and accountability in the way the government set fiscal policy.
NIESR suggests the Office for Budget Responsibility should publish a report in the run-up to every Budget, setting out the main economic and fiscal forecasts assuming the government did nothing, highlighting any areas of concern.
He said this would allow for a better dialogue ahead of the event and allow greater scrutiny before a Budget in which the chancellor would be expected to address any potential difficulties highlighted by the OBR.