Following a record borrowing by the United Kingdom government in May, the total debt of the country has now exceeded the worth of its economy.
The government borrowed £55.2bn in May this year which was nine times larger than the borrowing of the government in the same month a year ago. It was also the highest for any month since 1993 when records started to be kept.
The total government debt of the UK touched £1.95trn with the borrowing in May which is now greater than the total size of the economy of the country – a first in the last 50 years.
The high debt level reinstates the severity of the impact that the virus was having on public finances, said Chancellor Rishi Sunak.
“The best way to restore our public finances to a more sustainable footing is to safely reopen our economy so people can return to work. We’ve set out our plan to do this in a gradual and safe fashion, including reopening high streets across the country this week, as we kickstart our economic recovery,” he added.
The novel coronavirus related lockdown resulted in slump in income from tax, National Insurance and VAT in May while expenditure for supporting the economy and businesses increased.
While this is the first occasion that the government debt of the country has surpassed the size of the economy of UK, it is however not close to the highest ever debt to economy ratio of 258 per cent that was reached during the post-war period in 1946-47.
The UK economy marked another record of sorts with the deficit – the difference between spending and tax income – for the first two months of the financial year (April and May), estimated to be touching £103.7bn. That amount is higher by £87bn compared to the same period last year.
But according to the estimates of the Office of National Statistics of the UK, the total borrowing for 2020-21 financial year and the resultant deficit will be at £298bn which will be much more than that for the two month period and the highest since the Second World War. The ONS further cautioned that given the high level of uncertainty due to the coronavirus, its estimates could be proved wrong and the actual deficit could be even greater.
April’s borrowing figure was the highest since records began in 1993, the ONS had previously predicted. That figure was subsequently revised down to £48.5bn from £62bn. This was because of a higher than expected income from taxes and national insurance while the spending of the government for the Coronavirus Job Retention Scheme was lower thyan had been expected by the body.
There was a drop of 46 per cent in the amount of VAT collected in the month, noted Alex Tuckett, senior economist at consultants PwC. The firm however also noted that the biggest issue for the government’s finances was the £29bn that it spent on the various support schemes for the economy.
“In the near term, there are signs the economy is recovering as the country re-opens, and this should boost tax receipts. However, these figures remind us that Chancellor Rishi Sunak faces a difficult backdrop to any summer fiscal event.”
(Adapted from BBC.com)