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UK public borrowing falls despite fuel crisis and supply chain issues

<span>Photograph: Maureen McLean/REX/Shutterstock</span>
Photograph: Maureen McLean/REX/Shutterstock

Government borrowing fell at a faster than expected rate in September as the furlough scheme came to an end and tax receipts recovered strongly.

Figures published by the Office for National Statistics showed borrowing fell to £21.8bn last month from £28.8bn in the same month a year earlier, as Covid support measures were unwound. It was still the second-highest September borrowing since comparable records began in 1993.

Related: The real challenges for Rishi Sunak lie ahead despite drop in public borrowing

Public sector borrowing for the first six months of the 2021-22 year fell to £108.1bn, down by £101.2bn in April-September 2020 but roughly triple its level before the pandemic, the ONS added.

City economists had expected a slightly higher level of borrowing of £22.6bn in September after the economy began to slow in response to severe shortages of petrol and raw materials that forced factories to cut production.

However, lower Whitehall spending helped the chancellor, Rishi Sunak, maintain a steady cut in borrowing that is likely to boost his spending power when he presents next week’s budget.

Sunak is expected to present fresh forecasts for the public finances that show borrowing this financial year on track to come in around £40bn below the most recent forecasts made in March thanks to faster economic growth.

Responding to the latest borrowing figures on Thursday, the chancellor said he planned to reduce borrowing in the next financial year to bring the government’s spending under control.

He said: “At the budget and spending review next week I will set out how we will continue to support public services, businesses and jobs while keeping our public finances fit for the future.”

Britain’s budget deficit soared last financial year to 15% of GDP – its highest since the second world war – but is expected to drop to just over half that this year due to the end of emergency economic support and stronger tax revenues.

Last month, Sunak announced a £12bn increase in national insurance, hitting workers and employers, starting next year, alongside a freeze on income tax thresholds to fund health and social care. In addition, he plans to introduce higher rates of corporation tax from 2023.

Michal Stelmach, a senior economist at the consultancy KPMG, said: “With the remaining employees navigating their way back into work, the final month of furlough brought the overall cost of the scheme to £69bn, rising to nearly £100bn including spending on the self-employment income support scheme.

“Ahead of next week’s budget, the chancellor faces a cocktail of slowing recovery, vulnerable labour market and public debt at its highest level since the 1960s, while the recent lifting of restrictions on creditor actions could trigger a wave of corporate insolvencies.

The UK’s total borrowing continued to climb, standing at £2.2tn at the end of September 2021 or around 95.5% of gross domestic product (GDP), the highest ratio since the 98.3% recorded in March 1963.