The government’s borrowing bill jumped in May as rising debt interest payments offset falling public sector spending following the pandemic.
Britain’s public sector borrowing hit £14 billion last month, the third-largest May debt bill since 1993, according to data from the Office for National Statistics. City economists expected borrowing of £12 billion.
Higher inflation means the government has been forced to spend more on servicing government debt, with the bill climbing to £7.6 billion in May — £5 billion linked to a rise in inflation as measured by the retail prices index (RPI) which government bonds are indexed to. RPI inflation rose to a 32-year record of 11.6 per cent in May.
The ONS said the growing debt interest bill helped cancel out falls in government spending following the end of pandemic-era expenditure such as the furlough scheme. Total government expenditure in May hit £74 billion and revenues totalled £66.6 billion.
Rishi Sunak, the chancellor, last month announced a £15 billion support package for stricken households facing a record cost of living crisis. The scheme will be part funded by an emergency windfall tax on North Sea gas companies and partly through higher borrowing.
Boris Johnson, the prime ministers, has said the government has enough “fiscal firepower” to counteract the highest inflation in 40 years. However, the chancellor has warned of the perilous impact that surging inflation will have on the government’s public finances by raising the servicing costs on inflation-linked government bonds.
“Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets,” Sunak said. “That is why we are taking a balanced approach using our fiscal firepower to provide targeted help with the cost of living, while remaining on track to get debt down.”
“Being responsible with the public finances now will mean future generations aren’t burdened with even higher debt repayments, and we can secure our economy for the long term,” the chancellor said.
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Rising debt costs drive up UK borrowing to £14bn in May