Public sector borrowing was more than £300billion in 2020/21, hitting a level not seen since the end of the Second World War, according to new official statistics which reveal the extent of the economic damage done by the Covid crisis.
Data published by the Office for National Statistics this morning showed that net borrowing during the last financial year is estimated to have been £303.1billion.
That is some £246.1billion more than was borrowed in the previous financial year.
It is the highest number recorded for any financial year since records began back in 1947.
Meanwhile, the data also showed public sector net debt continues to climb above £2.1trillion.
The latest number published by the ONS put debt at £2.141trillion at the end of March this year.
That equates to almost 98 per cent of UK gross domestic product, keeping debt at levels not seen since the early 1960s.
Paul Johnson, the director of the Institute for Fiscal Studies think tank, said he believes annual borrowing has peaked but 2021/2022 could still be the second highest year on record.
He told BBC Radio 4’s Today programme: ‘Well, certainly at an annual level we would expect borrowing levels to have peaked.
‘They will be unless of course we have another awful wave of the virus, they ought to be less this year.
‘But the projections are still they will be very high this year whilst the year just gone they were the highest on record outside of the two world wars, there is still a good chance that this year they will be the second highest on record outside of the two world wars.
‘They could still be bigger than they were during the financial crisis.’
Mr Johnson said the level of borrowing does leave the Government vulnerable to any increase in interest rates.
He said: ‘The good news is that the cost of borrowing is the lowest literally in the whole of history since the government borrowing in the 1600s.
‘But the risk in a sense is that because so much of that is held, so much of that debt is held by the Bank of England, if Bank of England base rates go up then the cost of government debt goes up immediately and that is an unusual thing because usually you have to wait for the debt to be reissued and interests rates to go up and its a gradual thing.
‘Given where we are at the moment, if interests rates go up it is an immediate and quite big impact on the government finances.’
KPMG senior economist Michal Stelmach said: ‘Rising debt is largely an unfortunate consequence of the Government’s focus on shielding the economy as much as possible from the impact of Covid-19.
‘However, doing otherwise could have created long-lasting scars which would be far worse for fiscal sustainability.’
Mr Stelmach said that while borrowing has so far risen to pay for increased spending, the Government is likely to need to borrow to make up for a shortfall in the tax it collects this year.
This is partly because of Chancellor Rishi Sunak’s £12.5 billion ‘super deduction’ on corporation tax for some businesses.
This will be coupled with lower amounts of income tax as furlough ends.