The ONS released its monthly bulletin for the UK economy yesterday presenting the second provisional estimates of UK public sector finances for the latest full financial year (April 2019 to March 2020) and the first estimate of April 2020. All of the numbers seem to breaking records of one sort or another due to the effects of the coronavirus pandemic. We will get one more months figures, and these will almost certainly be far worse, before a decision needs to be taken on whether the transition period should be extended.
It was a no-brainer before covid-19 struck and if the government sticks to its pledge not to request or accept an extension, given the dire state of the public finances, I will be very surprised. The markets would react very badly in my opinion.
I'll quote a few paragraphs from the ONS to give you a flavour:
Central government net cash requirement (central government net cash requirement excluding UK Asset Resolution Ltd, Network Rail and the COVID Corporate Finance Facility) in April 2020 was £63.5 billion, £73.3 billion more than in April 2019; the highest cash requirement in any month on record (records began in April 1984).
We had a cash surplus of nearly £10 billion in April of the year before, now it's negative by £63 billion!!
We had a cash surplus of nearly £10 billion in April of the year before, now it's negative by £63 billion!!
Central government net cash requirement in the latest full financial year was £56.5 billion, £19.6 billion more than in the previous financial year; the highest cash requirement in any financial year since the financial year ending March 2017.
Bear in mind that the coronavirus lockdown started on March 23 so we had just about 12 days of it in the financial year 2019-20. It cannot have had more than a minuscule impact yet borrowing was already nearly £20 billion higher than the year before.
Borrowing (public sector net borrowing excluding public sector banks, PSNB ex) in April 2020 is estimated to have been £62.1 billion, £51.1 billion more than in April 2019; the highest borrowing in any month on record (records began in January 1993).
Borrowing in March 2020 was revised up by £11.7 billion to £14.7 billion, largely due to a reduction in the previous estimate of tax receipts and National Insurance contributions and the recording of expenditure associated with the Coronavirus Job Retention scheme.
Borrowing in the latest full financial year (April 2019 to March 2020) is estimated to have been £62.7 billion, £22.5 billion more than in the previous financial year; these are not final figures and will be revised over the coming months as we replace our initial estimates with provisional and then final outturn data, and as more information on the effects of the COVID-19 pandemic becomes available.
I am not entirely sure what the difference is between the net cash requirement and borrowing but as you can see, borrowing was already up by £22 billion by the end of March.
Debt (public sector net debt excluding public sector banks, PSND ex) at the end of April 2020 was £1,887.6 billion (or 97.7% of GDP), an increase of £118.4 billion (or 17.4 percentage points) compared with April 2019; the largest year-on-year increase in debt as a percentage of GDP on record (monthly records began in March 1993).
The figure to remember is the April borrowing at £62.1 billion - this is for ONE MONTH and is already the same as for the whole of 2019-20. In the 2009-10 financial crisis borrowing reached £152 billion for the whole year. Now we are borrowing 40% of that in a single month. Expect May to be even worse and for the whole year we are probably looking at well over £300 billion.
These are absolutely massive jaw-dropping figures.
The come as the FT report of a split growing between Johnson and his chancellor about the speed of lifting the lockdown measures. The FT report:
"Tensions have opened up between Boris Johnson and Rishi Sunak, his chancellor, over the speed at which Britain’s lockdown is lifted, amid growing Treasury alarm at the damage wreaked on the public finances by the pandemic. Mr Sunak told Tory MPs on a conference call that he wants to open up the economy as swiftly as possible, taking aim at the “very cautious” experts on the government’s scientific advisory body, Sage. Mr Johnson told the cabinet earlier this month the government would “advance with maximum caution” as it gradually eases the lockdown. But the chancellor told Tory MPs of his frustration that so much of the economy remained shuttered."
"Tensions have opened up between Boris Johnson and Rishi Sunak, his chancellor, over the speed at which Britain’s lockdown is lifted, amid growing Treasury alarm at the damage wreaked on the public finances by the pandemic. Mr Sunak told Tory MPs on a conference call that he wants to open up the economy as swiftly as possible, taking aim at the “very cautious” experts on the government’s scientific advisory body, Sage. Mr Johnson told the cabinet earlier this month the government would “advance with maximum caution” as it gradually eases the lockdown. But the chancellor told Tory MPs of his frustration that so much of the economy remained shuttered."
I am not surprised at the "Treasury alarm" - they more than anyone will know we have been reliant on the kindness of strangers (as Mark Carner put it) for the last decade and we will now be even more reliant on them in the coming decade.
How the money markets might react to news that not only has borrowing soared and revenue plummeted but that with a hard Brexit, we risk serious damage to the productive capacity of the economy which we will need to pay for the loans.
To recklessly ignore what might happen with another sterling crisis would be unforgivable at the best of times - but to do it against a wall of advice that asking for an extension is the only sensible course of action - would also be political suicide.
Who could they blame?
How the money markets might react to news that not only has borrowing soared and revenue plummeted but that with a hard Brexit, we risk serious damage to the productive capacity of the economy which we will need to pay for the loans.
To recklessly ignore what might happen with another sterling crisis would be unforgivable at the best of times - but to do it against a wall of advice that asking for an extension is the only sensible course of action - would also be political suicide.
Who could they blame?
Dominic Cummings' sheer arrogance will be his downfall as we learned last night that he broke the rules by visiting his parents in County Durham while in lockdown with coronavirus himself. Scotland's chief medical office had to resign for doing the same thing and so did professor Neil Ferguson at Imperial college. He will no doubt try to hang on but I'm not convinced he will be able to. He is not a man with may friends and at a time like this he may struggle to get support even among Tory MPs.
If Cummings does survive it will only damage Johnson himself who had a lucky escape this week over the Jennifer Arcuri affair.
