UK government borrows record £62bn as high street feels strain of crisis

The government was forced to borrow a record £62bn to balance its books in April as the public finances felt the strain from a shutdown of the economy and an unprecedented 18% drop in high-street spending.

Figures from the Office for National Statistics highlighted the dramatic impact of the Covid-19 restrictions introduced in late March on activity, with public borrowing up by more than £50bn on the same month a year earlier and spending in clothes stores down by 50%.

The ONS said there had been a sharp drop in the state’s main sources of revenue coupled with a marked increase in spending. With the economy at a virtual standstill, the government borrowed as much last month as in the whole of the previous financial year. It was the highest monthly total since comparable records began in 1993.

Although ministers expect April’s figures to take the biggest hit from Covid-19, a senior official at the Bank of England warned that recovery was likely to be slower than previously anticipated.

The ONS said the full effects of the pandemic on the public finances would only be felt over the coming months and as a result the April data was likely to be substantially revised. The Independent Office for Budget Responsibility believes borrowing will reach a peacetime record of £300bn for 2020-21 as a whole.

Government borrows to bridge the gap between the money it raises and the money it spends. In April, tax receipts were down by 26.5% on the same month a year earlier, with income tax receipts down by 30.3%, corporation tax down by 14.1% and VAT down by 43.6%. The cost of the Treasury’s furloughing scheme, together with higher spending on the NHS, contributed to a 56.6% annual increase in government spending.

The chancellor, Rishi Sunak, said he had no alternative but to borrow more.

“Our top priority is to support people, jobs and businesses through this crisis and ensure our economic recovery is as strong and as swift as possible. That’s why we’ve taken unprecedented steps to provide lifelines to people and businesses with our furlough scheme, grants, loans and tax cuts,” Sunak said.

“If we hadn’t provided this support, more livelihoods would be at risk, and the economic and financial cost would have been much worse.”

Separate ONS data for retail sales volumes showed that the 5.2% drop in March was dwarfed by an 18.1% decline in April – the first full month of the lockdown. The declines in the past two months have wiped out 15 years of growth, taking sales back to their level in 2005. The ONS said 15% of stores reported zero turnover last month.

All sectors of the retail industry were affected apart from purchases made from online retailers – which were up 18% – and sales of alcoholic drinks – which rose by 2.3%.

With consumers confined to their homes, petrol sales were down 52% while sales of clothing halved last month, following a drop of more than a third the previous month.

Jonathan Athow, deputy national statistician for economic statistics at ONS, said: “The effects of Covid-19 have contributed to a record monthly fall in retail sales of nearly a fifth. Fuel and clothing sales fell significantly while spending on food also dropped after the surge from the panic buying seen last month. Off-licence sales, however, continued to increase.

“Online shopping has again surged as people purchased goods from their homes.”

Jeremy Thomson-Cook, chief economist at Equals, said: Today’s UK retail sales figures show the nature of consumer facing businesses through the Covid-19 crisis; you have to be online and food or booze related or your sales have been crippled.”

He added: “The reopening of shopping centres and areas will take a huge amount of time and planning with no guarantee of a full recovery. Online fulfilment will remain crucial given shoppers may have the ability to return to shops soon but the desire to physically turn up will likely be lacking.”

Earlier this month, the Bank of England envisaged a rapid bounce back in the economy in the second half of 2020, but one of its deputy governors, Dave Ramsden, said this was now in doubt.

Noting that the Covid-19 recession would leave long-term scars on the economy from low investment and high unemployment, Ramsden told Reuters some companies might need to permanently downsize or fold altogether because “they just didn’t fit sufficiently with what the current post-Covid world looks like”.

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