October’s borrowing pushed the mountain of UK debt to around £ 2,076.8 billion, according to the ONS, or 100.8% as a share of GDP. The debt-to-GDP ratio is now at levels last seen in fiscal year 1960-61, when Harold Macmillan was Prime Minister and Britain was repaying debt incurred during World War II.
The deficit in October was not as bad as the £ 35bn expected after a strong rebound in the economy over the summer months that prevented a steeper drop in tax revenues.
To give Chancellor Rishi Sunak a boost, who has faced pressure from numerous Tory backbenchers to curb public spending, the total deficit since April was £ 77bn lower than that estimated in July by the Office of Budget Responsibility, the independent treasury forecaster.
However, the annual deficit was still on track to reach £ 400bn by the end of the fiscal year in April following the government’s decision to impose a second lockdown and maintain the program of holidays in 2021.
Responding to the ONS figures, Sunak said: ‘We have provided more than £ 200 billion in support to protect the economy, lives and livelihoods from the large and far-reaching impacts of the coronavirus.
“It is the responsible thing to do, but it is also clear that over time it is right to ensure that public finances are put on a sustainable path.”
The Institute for Fiscal Studies said that while the deficit was lower than the OBR forecast, the first seven months of the year had already exceeded the annual deficit after the 2008 bank crash.
“In just seven months, borrowing already represents a larger share of national income this year than in 2009-10 as a whole, when borrowing peaked during the financial crisis,” he said.
Paul Dales, chief UK economist at Capital Economics, said the worst was yet to come after the second foreclosure, which would likely lead to a further increase in the pace of borrowing in the months to come.
“We expect the deficit to reach around £ 420 billion – or 21.7% of GDP – in 2020-2021,” he said.
The ONS said tax revenue was estimated at £ 39.7bn in October, £ 2.7bn less than in October 2019, cuts in VAT, trade rates and tax on the income causing the most damage.
Meanwhile, government agencies spent £ 71.3bn on day-to-day operations, up £ 6.4bn from the same month last year.
Howard Archer, chief economic adviser to the EY Item Club, said it was difficult to estimate the annual deficit as the extent and duration of government restrictions remained uncertain, although he expected the deficit reaches 400 billion pounds sterling.
He said: “Public finances are expected to come under increasing upward pressure due to the cost of recent additional measures to support the economy and employment, including the extension of the holiday scheme.
“The likely further economic contraction in the fourth quarter, caused by the national lockdown in England, will reduce revenues and further increase the deficit,” he added.
The central government paid out £ 4.3 billion in grants to businesses and households in October, according to the ONS.
Despite higher borrowing and increased debt, interest payments on outstanding government debt stood at £ 2bn in October, £ 4.4bn less than in the same month Last year.