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Response to the latest ONS public sector finances data

Press release

Responding to the latest ONS public sector finances data, Isabel Stockton, Research Economist at the Institute for Fiscal Studies said:

"For the first time these figures include an allowance for the degree to which emergency government-backed business loans made through the pandemic will never be repaid. The Office for National Statistics estimates that non-repayments will total £21 billion, which would be just over a quarter of the £80 billion loaned out. This is a big number, but not as big as feared by the Office for Budget Responsibility whose Budget 2021 estimate was that £27 billion would not be recouped. Loans that are not expected to be repaid add to estimated borrowing when the loan is made. So these bring estimated borrowing in 2020-21 up to £325 billion, compared to £298 billion estimated in last month's figures. This is below the £355 billion assumed by the OBR's March 2021 Budget but is, of course, much higher than the £55 billion forecast on the eve of the pandemic in the March 2020 Budget.

For the overall health of the public finances, the precise size of last year's historic spike in borrowing is not all that important. What matters more are the strength of the eventual recovery, whether current strength in tax receipts persists into future years and whether the large income tax, corporation tax, and National Insurance tax rises announced since March are actually implemented as planned. These questions will determine whether the Chancellor can afford to top up tight spending plans in next month's Spending Review to address some of the myriad challenges facing public services while remaining on course to eliminate the current budget deficit in the medium term."

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"On a 12-month rolling basis, borrowing has been falling since April, and falling faster than expected at the Budget. But at 10.8% of national income, today's figures show that borrowing over the year to July was still high compared to the long-run pre-COVID average of 2.5%."