Time to wrap up, with a brisk summary.

Britain’s national debt has hit its highest level since the early 1960s, as the Covid-19 pandemic continues to drive up government spending and hit income.

Public sector net borrowing jumped to £22.3bn last month, an October record, pushing borrowing so far this year to £214.9bn.

October’s borrowing was lower than expected, but economists warned that November’s lockdowns would push borrowing higher again. Rishi Sunak insisted the government was acting responsibly.

HMRC highlighted the impact of the pandemic on the public finances, reporting that tax receipts have slumped by over £70bn so far this financial year. VAT, corporation tax, income tax, fuel duty and air passenger duty have all fallen sharply.

The figures come days before the government’s spending review, which is reported to include a pay freeze for some public sector workers.

Unions, and the opposition Labour party, both urged the chancellor to resist the move.

In the eurozone, consumer confidence has taken a hit this month.

But UK retail sales have beaten forecasts, as shoppers got their Christmas lists out early last month.

European stock markets have ended the day higher, but there is concern that the US Treasury has decided to end some of the Federal Reserve’s emergency lending powers next month.

Steven Mnuchin, Treasury secretary, has denied acting wrongfully, telling CNBC that there is plenty of firepower around if needed.

“Markets should be very comfortable that we have plenty of capacity left.

“I find it kind of ironic now that I’m being prudent and returning the money to Congress like I’m supposed to that people are questioning that.”

On that note, goodnight, and have a lovely weekend. GW

A week that began with a bang, with Moderna’s impressive vaccine trial results, has ended rather more quietly.

The FTSE 100 index has closed 17 points higher at 6351, up 0.3%. Mining group Antofagasta (+3.4%), software company Avast (+3.1%) and retail group JD Sports (+2.7%) were the top risers.

But accountancy firm Sage had a rough day, falling 13% after reporting its results this morning. It reported a dip in organic operating profits, and warned that [profit margins would squeezed as it beefs up its Business Cloud operations.

European markets also closed higher, with the Stoxx 600 up around 0.5% today - and up around 1% for the week.

But on Wall Street, the Dow is down 113 points or 0.5%, as traders fret about the US Treasury’s decision to cuts off some Federal Reserve emergency lending programs.

Edward Moya of OANDA explains:

With 61 days until January 20^th, financial markets are trying to figure out if any near-term uncertainties will produce a significant stock market pullback.

The escalating pandemic is putting pressure on Congress to pass a stimulus package with federal unemployment benefits and small-business aid.

Treasury Secretary Mnuchin’s unusual request to have the Fed return some money surprised everyone. Some parts of the country are about to see the worst COVID-19 and now seems hardly the time to remove any support programs.

The current COVID surge will trigger further economic pain for the US economy and possible strains to the financial system, thus making Mnuchin’s request a Grinch-like move that just adds more uncertainty to the short-term outlook.

Heads-up, UK readers looking to get onto the housing ladder.

Nationwide is “open-minded” about offering lower deposit mortgages that could help first-time buyers who are struggling to secure a loan during the coronavirus crisis, its chief executive has said.

The building society, which is the UK’s second largest mortgage provider behind Lloyds Banking Group, is one of the few high street lenders offering loans worth up to 90% of a property’s value.

While rivals such as HSBC have “temporarily reserved” people’s mortgages worth more than 85% of the value of a home to customers switching interest rates in order to curb surging demand, Nationwide’s chief executive, Joe Garner, said he was not ruling out offering low-deposit loans over the coming months....

More here:

Worryingly, but not surprisingly, consumer confidence in the eurozone has fallen this month.

The EC’s latest gauge of consumer morale in the eurozone has dropped to -17.6 points in November, from -15.5 last month.

The wider EU is even gloomier, with the consumer confidence indicator dropping to -18.7 from -16.5.

Both indicators are “well below” their long term average, and heading towards the lows seen early in the pandemic.

HM Revenue and Customs (HMRC) has reported that UK tax receipts have slumped by over £70bn so far this financial year.

Its latest Tax Receipts & National Insurance Contributions report, published this morning, shows a sharp fall in takings since April.

Tax receipts have been “significantly impacted by the Covid-19 pandemic”, says HMRC, which is one factor behind the UK’s soaring deficit.

The fall is partly due to the decision to let firms defer VAT payments earlier this year, along with falling company profits, lower incomes, the stamp duty holiday on house purchases, and the drop in driving (meaning less fuel duty) and air travel (hitting air passenger duty, a tax on flights).

HMRC says there have been falls in VAT (£38.7bn), Income tax & NICs (£11.0bn), Corporation tax (£11.9bn), hydrocarbon oils (£4.2bn), Stamp taxes (£2.7bn) and Air Passenger Duty (£2.0bn - the largest percentage fall).

As a result, total HMRC receipts for April to October 2020 are £70.6bn lower than a year ago.

Heather Self, a partner at tax and advisory firm Blick Rothenberg, is particularly concerned by the slump in corporation tax:

“A large part of this relates to taxes deferred, particularly in relation to VAT (£38.7bn fall for the first 6 months) where businesses were permitted to defer all payments due for a period. Some of this cash will come back over the next couple of years.

The fall in Corporation tax is huge – almost £12bn over the first 6 months, suggesting total corporation tax receipts will be down by more than a third over the year as a whole. In October alone, receipts were down by almost £7bn, although this was partly offset by about £3bn higher receipts from the largest companies in September due to a change in their payment pattern.

George Bull, tax consultant at RSM, says the scale of the £70.6bn fall in tax takes is “shocking”, adding:

The figures will be particularly unwelcome to Chancellor of the Exchequer Rishi Sunak as they further limit his scope for action as he prepares to deliver his economic forecast on Wednesday 25 November.

‘Some of the shortfall will reflect time-to-pay agreements negotiated by businesses. Provided those businesses survive, this tax will become payable in due course. It will be interesting to see how the Chancellor factors this into next week’s statement.

‘Of the smaller taxes, stamp taxes fell when the property market stalled during the first lockdown. Fuel duty naturally declined as people undertook fewer road journeys.

Bull also points out that tax receipts from tobacco and alcohol duty have risen so far this year.

The slight rise in alcohol duty will be accounted for as people shifted their purchases from restaurants and pubs to supermarkets and off-licences. It also seems that people in the UK are smoking more.

The Institute of Chartered Accountants in England and Wales says Rishi Sunak should focus on building the economic recovery in next week’s spending review, rather than worrying about borrowing costs.

Alison Ring OBE, ICAEW Director for Public Sector, says Britain’s extremely low bond yields mean high government spending levels are not yet a problem.

“The Government continued spending heavily during October, although at a slower rate than in previous months. Fortunately ultra-low borrowing costs mean that the Chancellor will not have to worry about having to plug the fiscal hole with next week’s Spending Review. Instead the focus should be on how the Government can put in place building blocks for economic recovery.

“The long-delayed National Infrastructure Strategy will be key, as will proposals to reform government operations to make them more effective. Ministers must be hoping that recent positive news on vaccines will allow the focus in 2021 to change from providing emergency life-support for the economy to ‘building back better’.”

Chancellor of the Exchequer, Rishi Sunak, has insisted that the government has acted responsibly by raising spending to fight the pandemic:

“We’ve provided over £200bn of support to protect the economy, lives and livelihoods from the significant and far reaching impacts of coronavirus.

“This is the responsible thing to do, but it’s also clear that over time it’s right we ensure the public finances are put on a sustainable path.”

As today’s papers report, that path could lead to a painful squeeze on public sector wages.

Unions have attacked the idea. UNISON general secretary Dave Prentis called it a “cruel body blow” given the efforts made by employees across the public sector during the pandemic.

“Key workers across all public services remain at the heart of the fight against Covid.

“Reports of pay restraint for all but frontline NHS staff would be a cruel body blow to other health, care and public service employees working tirelessly to get us through the pandemic. It would also backfire badly with the public.

More here: Pay restraint is a “cruel blow” for those working tirelessly in the pandemic, says UNISON

Despite the pandemic, UK retail sales kept rising in October, with some consumers starting their Christmas preparations early.

Retail sales volumes grew by 1.2% last month, the sixth month of growth in a row, the Office for National Statistics reports.

On an annual basis, people bought 5.8% more (in volume terms) than a year ago.

That beat City forecasts, and appears to show that some people rushed to the shops with their Christmas lists before non-essential stores were ordered to close.

Jonathan Athow, deputy national statistician for economic statistics at the ONS, said:

“Despite the introduction of some local lockdowns in October, retail sales continued its recent run of strong growth.

Feedback from shops suggested some consumers may have brought forward their Christmas shopping, ahead of potential further restrictions. Online stores also saw strong sales, boosted by widespread offers.”

Internet shopping, or non-store retailing, led the way, with volumes now 44.9% higher than February, while clothing and fuel lag behind.

Britain’s national debt, as a share of the economy, is at its highest since the early 1960s.

October’s borrowing has pushed public sector net debt to around £2,076.8bn, the ONS reports, or around 100.8% of gross domestic product (GDP).
That debt-to-GDP ratio is now at levels last seen since the 1960-61 financial year, when Harold Macmillan was prime minister and Britain was paying down the debt incurred in the second world war.

The ONS explains:

The extra funding required to support government coronavirus support schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Britain has racked up another month of record-breaking borrowing, as the cost of the Covid-19 pandemic continues to mount.

The latest public finances, just released, show that the UK borrowed £22.3bn in October to balance the books, around £10.8bn more than a year ago.

That’s the highest October borrowing figure on record, and the sixth-highest borrowing in any month since monthly records began in 1993 (beaten only by April, May, June, August and September this year).

But, it’s well below the £35.2bn which City economists forecast, and lower than September’s £28.6bn [which has been revised down]. Even so, borrowing is heading towards record levels:

The Office for National Statistics report that tax receipts fell last month, while the pandemic continued to push up government spending:

• Central government tax receipts are estimated to have been £39.7 billion in October 2020 (on a national accounts basis), £2.7 billion less than in October 2019, with falls in Value Added Tax (VAT), Business Rates and Pay As You Earn (PAYE) income tax.
  
  
• Central government bodies are estimated to have spent £71.3 billion on day-to-day activities (current expenditure) in October 2020, £6.4 billion more than in October 2019; this growth includes £1.3 billion in Coronavirus Job Retention Scheme (CJRS) and £0.3 billion in Self Employment Income Support Scheme (SEISS) payments.

Since April, public sector net borrowing has reached £214.9bn -- the highest public sector borrowing in any April to October period since records began in 1993.

The news comes as the chancellor, Rishi Sunak, prepared to announce a renewed squeeze on public sector pay in next week’s government spending review, as part of a Whitehall savings drive to tackle record levels of government borrowing incurred during the crisis.

As our story explains:

It is understood that NHS staff, including doctors and nurses, will be exempt from the renewed period of restraint to avoid triggering an angry public backlash as a result of the frontline role played by healthcare workers during the pandemic.

However, unions warned a renewed pay freeze elsewhere would still come as a kick in the teeth for staff after Boris Johnson had promised to bring austerity to an end before the 2019 election, and as millions of key workers continue to keep the country going through the health emergency.

European stock markets, meanwhile, may be overshadowed by US politics. Overnight, US treasury secretary Steven Mnuchin announced that some of the Federal Reserve’s emergency lending programs will expire on 31 December, when the CARES stimulus act ends.

That could make it harder for the central bank to backstop the US financial system, further complicating Joe Biden’s transition.

The agenda

• 7am GMT: UK public finances for October
• 7am GMT: UK retail sales for October
• 3pm GMT: Eurozone consumer confidence report