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Public sector finance stats this morning actually tell you quite a lot about the big picture of this crisis once you dig under the “loads of borrowing” headline. A thread... https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/january2021#borrowing-in-january-2021
Ignore the blindingly obvious headline that we’re borrowing shed loads (£8.8bn in January, twice any other January on record). A pandemic is expensive. Who knew. What’s more interesting is what’s driving this. In normal recessions we see spending rise and tax receipts fall a lot
This time totally unprecedented borrowing is all about central govt spending, up £21.5bn on last January 2020 (more than the total borrowing increase). Pandemics are expensive - with huge spend on virus fighting (e.g test & trace, vaccines) and on protecting incomes (furlough)
Tax receipts are actually holding up well. In normal recessions that would make us very perky about economic activity. This time it should make us perky for a different reason: it means attempts to insure people’s incomes have worked (you still pay income tax/NI on furlough)
Obviously some tax receipts have taken a kicking from the crisis - VAT down £1bn given we can spend. Stamp duty is down a quarter & business rates down 40%, in part due to holidays. But self-assessment (a big deal in jan) is up (it relates to the year largely pre-covid).
Why is this important? It tells you about the now (we’re collectively spending via govt to ON AVERAGE protect incomes now). And about the future (as we wind down govt spending next year the balance of fiscal challenges will move from spending to tax revenues)
Got to be a decent chance that despite GDP being much higher next year than this, that income tax and National Insurance may well actually be lower.
More immediately, spending this year while huge looks like it’s coming in below the OBR November forecast - fairly material for new forecasts due on 3rd March (although remember OBR forecasts include tens of £bns in written off govt guaranteed debt that aren’t in the ONS figures)
