Rising inflation led to UK government interest payments hitting a fresh record in February, official data show. Interest payments reached £8.2bn last month, the highest amount for a February since records began in April 1997 and up £1bn on last year.
The payments are pegged to the Retail Prices Index (RPI) measure of inflation – which reached 7.8% in January. It comes as pressure mounts on the Chancellor Rishi Sunak to take action to tackle soaring costs. Calls from charities and politicians have been growing for the chancellor to address the rising cost of living at the Spring Statement on Wednesday, where he will deliver an updated set of figures on how the economy is doing.
Surging food prices, energy bills and fuel prices have pushed costs up for households, but rising inflation also means the government is paying more in interest payments on debt.
The government has borrowed billions of pounds to spend on measures designed to limit the impact of the Covid pandemic, such as the furlough scheme, over the last couple of years.
The new data showed that public sector debt, excluding public sector banks, remained at a level not seen since the early 1960s.
In response to the latest figures, Mr Sunak said:”The ongoing uncertainty caused by global shocks means it’s more important than ever to take a responsible approach to the public finances.
“With inflation and interest rates still on the rise, it’s crucial that we don’t allow debt to spiral and burden future generations with further debt.”
The Office for National Statistics (ONS) said that government borrowing stood at £13.1bn in February, down by £2.4bn from the same month a year earlier, during the height of the pandemic.
February’s borrowing figures were the second-highest since monthly records began in 1993. It also was £12.8bn more than the level seen in February 2020, which was before lockdowns were brought in.
Where does the government borrow billions from?
The amount the government borrows to make up the difference between what it spends and what it collects is known as “public sector net borrowing”.
It will borrow because it spends more than it gets in income, which mainly comes in from taxes like VAT or income tax.
It does this by borrowing bonds – a promise to make payments to whoever holds it on certain dates – essentially an interest-paying “IOU”.
Sir Charlie Bean, an economics professor at the London School of Economics, told the BBC’s Today programme that improved tax receipts would mean that the chancellor might have more “wiggle room” at the Spring Statement.
According to the new figures, the government collected £53.7bn in taxes this February, up by more than £4bn in comparison with last year.
He suggested that could mean that Mr Sunak could even have as much as £50bn “to play with”, depending on how the independent forecaster the Office for Budget Responsibility thinks the cost of living will change over the next few years.
James Smith, research director at the Resolution Foundation think-tank, added: “The chancellor will approach the UK’s latest crisis – the tightest income squeeze in generations, exacerbated by the Russian invasion of Ukraine – with the public finances in better shape than expected”.
He called on the chancellor to take the opportunity to provide emergency income support to families through the cost of living crisis.
Source: bbc.com
