Business
UK government borrowed less than expected
The government borrowed less than expected last year, despite spending heavily on helping with energy bills and facing higher borrowing costs.
Borrowing, the difference between spending and tax income, was estimated at £139.2bn in the year to 31 March.
That was less than had been predicted and gives ministers “wiggle room” for possible tax cuts ahead of the next election, one analyst said.
The chancellor said the government was still borrowing “eye-watering sums”.
The amount borrowed last year was equivalent to 5.5% of the value of the UK economy – the highest percentage since 2014, excluding the pandemic.
However, the borrowing figure was lower than the £152bn predicted by the government’s forecaster, the Office for Budget Responsibility, at the time of the Budget last month.
The Office for National Statistics (ONS) said the government borrowed £21.5bn in March alone, the second-highest March figure since monthly records began in 1993.
Chancellor Jeremy Hunt said: “These numbers reflect the inevitable consequences of borrowing eye-watering sums to help families and businesses through a pandemic and [Vladimir] Putin’s energy crisis.
“We were right to do so because we have managed to keep unemployment at a near-record low and provided the average family more than £3,000 in cost-of-living support this year and last.”
However, he said the government had a “clear plan to get debt falling”.
The lower-than-expected borrowing for 2022-23 will give the chancellor “more wiggle room to cut taxes or raise spending ahead of the next general election”, said Ruth Gregory at Capital Economics.
Mr Hunt faces pressure from Conservative MPs to cut taxes before the next election, which is expected in 2024, while public sector workers’ unions are pushing for pay increases to offset the soaring cost of living.
Ms Gregory said that with the next election fast approaching, she “wouldn’t be at all surprised” to see giveaways in the Autumn Statement, following similar moves this spring.
But she added: “With both parties likely to stick to current plans to bring down public debt as a share of GDP, a sizeable fiscal tightening will still be required after the election, whoever is in charge.”
What could you do with an unexpected £13bn?
Thanks to the better-than-expected public finances, that’s the amount the chancellor could have at his disposal and still meet his (self-imposed) rules on financial housekeeping.
He has three broad choices:
He could boost spending. £13bn would be roughly enough for a 5% pay rise for public sector workers. But the chancellor has shied away from matching pay awards to current elevated rates of inflation – arguing that, by possibly provoking bigger pay rises elsewhere, that could prolong high inflation and be more damaging to the economy. Some economists dispute his reasoning.
Or, with an election looming within the next couple of years, he may cut taxes, throw a couple of sweeteners to voters – £13bn would pay for a penny or two off the standard rate of income tax, it would stretch to taking more than 1p off the standard rate of VAT, soften the blow of the cost of living crisis. After all, much of this sum came about because more money went to the tax man.
Or he may opt to save the cash – after all the outstanding pile of debt remains high. And the outlook for the economy – and so public finances – remains very uncertain. It would help raise his credentials for prudent housekeeping, and is the most likely option – for now .
But if the economy avoids any severe shocks, the temptation of a pre-election giveaway will be high.
The government’s borrowing costs jumped last year as interest rates rose around the world and spiked after former chancellor Kwasi Kwarteng proposed a swathe of tax cuts without explaining how he would fund them.
Mr Hunt reversed most of the plans easing concerns on financial markets. However, borrowing costs remain relatively high and the UK is set to be one of the worst performing major economies in the world this year, according to the International Monetary Fund.
All in all, the ONS said public sector net debt at the end of March 2023 was £2.53 trillion – equivalent to around 99.6% of the value of the whole UK economy and a level not seen since the early 1960s.
Mr Hunt has said he plans to get debt falling as a share of output – or GDP – in five years’ time.
Yael Selfin, chief economist at KPMG, told the BBC’s Today programme: “The way things are at the moment it doesn’t look like he will meet that target but it wouldn’t be the first time a chancellor doesn’t meet a target.
“The important thing is that he still has the confidence of the markets so in the longer term, debt will go down and we won’t have similar episodes like we had from last year.”
Reports /TrainViral/
The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.
“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.
Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.
Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.
Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.
In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.
However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.
The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.
But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.
As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.
The USO is a potential sticking point for both the government and unions.
Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.
How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.
Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.
Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.
‘Unconditional commitment’
Mr Kretinsky has committed in writing to honouring the USO, but only for five years.
And after that, in theory, the new owners could just walk away from it.
However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.
“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”
Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.
Another potential stumbling block for the deal, however, is how the company will be structured.
Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.
Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.
To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.
It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.
If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.
Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.
“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.
“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”
Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.
The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.
Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.
“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”
He said if the management, union and employees work together, “we will be successful”.
Another concern is the potential break-up of the business.
The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.
Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.
But he has a way to go to convince the CWU.
“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.
However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”
The union cannot stop this deal but the government can block it under the National Security and Investment Act.
Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.
Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.
Who is Daniel Kretinsky?
Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.
He then made serious money in Central and Eastern European energy interests.
This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.
He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.
The Czech businessman is worth about £6bn, according to reports.
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