Extract from Redwood Financial’s Economic Review August 2020
The latest public sector finance statistics revealed government debt breached the £2tn mark for the first time amid heavy spending designed to support the economy through the COVID-19 pandemic.
Figures released by ONS show that UK public sector net borrowing (the gap between the country’s overall income and expenditure) totalled £ 26.7bn in July. This was the fourth highest monthly borrowing figure since records began in 1993, with all three higher figures being recorded over the past three months.
As a result, total debt rose to £2.004tn in July, £227.6bn more than last year’s level. It also meant that, for the first time in nearly 60 years, debt crept just above 100% of the country’s gross domestic product (GDP) or, to put it another way, the debt figure is now greater than the value of everything the UK produces in one year.
The burgeoning debt level largely reflects the vast sums of money the government has spent on emergency support for the pandemic-hit economy across a range of measures including the Coronavirus Job Retention Scheme. In addition, the Treasury has also faced a severe reduction in tax revenues due to the economic impact of imposing lockdown.
With interest rates at historically low levels, the government is spending less servicing its debts than had been forecast before the pandemic hit. However, economists have warned the situation will inevitably get worse before it improves, with August set to see another jump in borrowing to fund the final Self-Employment Income Support Scheme payment and the ‘Eat Out to Help Out’ scheme.
Chancellor Rishi Sunak commented: “This crisis has put the public finances under significant strain. Today’s figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions.”