By David Milliken and Andy Bruce

LONDON (Reuters) -British public borrowing declined less sharply than expected in August and was its second-highest on record for the month, government figures showed on Tuesday, highlighting the hefty ongoing costs of the COVID-19 pandemic.

Although August’s public sector net borrowing was lower than August a year ago, the figure is still well in excess of economists’ 15.6 billion pound estimate in a Reuters survey.

The cost of COVID-19 meant that British government borrowing reached its highest level since World War Two. This was 15.5%, an increase from the earlier 14.2% estimate.

This upward revision by the ONS was due to increased estimates of COVID-19’s loan guarantee program and public-sector retirements.

Rishi Sunak (Finance minister) will announce new growth and budget forecasts for Oct. 27, along with new spending limits over multiple years and possibly longer-term financial goals.

The current fiscal year has seen a sharp drop in spending, thanks in part to the large decrease in people who are receiving job furloughs and other support for self-employed.

The total amount borrowed for the five first months of the fiscal year 2021/22 was 93.8 billion pounds. This is almost half the level that it was a year ago.

The biggest reason for this drop in spending was due to a significant decrease in furlough payments, which are stopped in August. A similar reduction in the support provided to the self-employed also contributed.

Higher interest rates on inflation-linked bonds had increased debt servicing costs and will likely increase in the months ahead, according to Samuel Tombs of Pantheon Macroeconomics.

The public debt percentage of gross domestic products rose to 2.23 trillion pounds, or 97.6% of the GDP in August. This is the highest level since March 1963.

UNDER CONTROL

“We are determined to get our public finances back on track – that’s why we have set out the focused and responsible steps we are taking to keep debt under control,” Sunak said on Tuesday.

In order to finance increased spending on health and longer-term care, the government announced that they would raise the payroll tax rate paid by employees and employers by 1.25 percentage points.

According to analysts, Britain’s tax burden will rise to an all-time high in peacetime as the tax increases take effect.

According to the Financial Times, Sunak will set a goal of eliminating borrowing for daily spending in three years. He also aims to reduce underlying public debt by 2024/25.

Pantheon’s Tombs indicated that the Budget will contain a package of measures which are fiscally neutral. However, any slight increase in GDP forecasts could be used to help ease the fiscal squeeze ahead of May 2024.

The British finance ministry stated that no decision had been made, other than Sunak’s goal to put the public finances on a sustainable basis.

($1 = 0.7317 pounds)