The government was forced to borrow a record £ 62 billion to balance its books in April, as public finances suffered from the closure of the economy and an unprecedented 18% drop in street spending.
Data from the Office for National Statistics highlighted the dramatic impact of the Covid-19 restrictions introduced at the end of March on the business, with public loans increased by over £ 50 billion in the same month of the previous year and spending on 50% clothing stores.
The ONS said that there was a sharp drop in the main sources of revenue in the state, associated with a marked increase in spending. With the economy deadlocked, the government borrowed both last month and the entire previous fiscal year. It was the highest monthly total since comparable records started in 1993.
Although ministers expect April figures to be hit the hardest by Covid-19, a senior Bank of England official warned that recovery would likely have been slower than previously expected.
The ONS said that the full effects of the pandemic on public finances will only be felt in the coming months and consequently the April data could be substantially revised. The independent budget responsibility office believes the loan will reach a peacetime record of £ 300 billion for 2020-21 as a whole.
The government borrows to bridge the gap between the money it collects and the money it spends. In April, tax revenues decreased by 26.5% compared to the same month of the previous year, with tax revenues of 30.3%, corporate taxes of 14.1% and VAT of 43.6% . The cost of the Treasury’s internship program, together with the increased spending on the NHS, contributed to a 56.6% annual increase in public spending.
The chancellor, Rishi Sunak, said he had no alternative but to borrow more.
“Our top priority is to support people, jobs and businesses during this crisis and to ensure that our economic recovery is the strongest and fastest possible. That’s why we’ve taken unprecedented steps to provide lifelines to people and businesses with our conciliation program, grants, loans and tax cuts, “said Sunak.
“If we had not 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 mitigated by an 18.1% drop in April, the first full month of the block. The decreases over the past two months have wiped out 15 years of growth, returning sales to their level in 2005. The ONS said 15% of stores had zero sales last month.
All sectors of the retail sector were affected apart from purchases made by online retailers – which increased by 18% – and sales of alcoholic beverages – which increased by 2.3%.
With consumers confined to their homes, gasoline sales fell 52% while clothing sales halved last month, after falling by over a third of the previous month.
Jonathan Athow, the National Deputy Statistician for Economic Statistics of the ONS, said: “The effects of Covid-19 contributed to a record monthly drop in retail sales of nearly a fifth. Sales of fuel and clothing declined significantly while food spending also declined following the spike in panic buying seen last month. Non-licensed sales, however, continued to increase.