The UK government’s debt exceeded £2 trillion for the first time in July and is expected to go higher as the Treasury pours unprecedented amounts of stimulus into the economy amid the coronavirus pandemic.
The debt – the total amount that the government has borrowed and owes – jumped by an enormous £228bn in the year to July, increasing by 20.4 percentage points to hit 100.5 per cent of GDP. In percentage terms, that is the highest level since the 1960s.
The government borrowed £26.7bn in July, the Office for National Statistics (ONS) said today. That was the lowest total since March, as many businesses and households were weaned off life support as parts of the economy reopened.
It was also below analysts’ expectations of £29.3bn. And it was considerably lower than the record £48.7bn the government borrowed in April as coronavirus took hold.
However, the ONS cautioned that “borrowing estimates are subject to greater than usual uncertainty”. Public borrowing in June was revised down by £6bn to £29.5bn.
The huge jump in borrowing has been driven by spending on support programmes such as the job retention scheme, which has seen the government step in to pay some of more than 9m workers’ wages. It has also handed out billions of pounds in grants to businesses.
Chancellor Rishi Sunak said: “This crisis has put the public finances under significant strain.” He said the government has “taken action to support millions of jobs, businesses and livelihoods”, without which “things would have been far worse”.
“Today’s figures are a stark reminder that we must return our public finances to a sustainable footing over time.” He said this “will require taking difficult decisions”.
Borrowing already close to financial crisis levels
Borrowing in the first four months of the financial year – from April to July – was around £150.5bn. That is “the highest borrowing in any April to July period” since records began in 1993, the ONS said.
It means that borrowing in just four months of 2020 is close to the total for the whole of 2009-10 of £158.3bn. That was previously the biggest cash deficit in history.
Ruth Gregory, senior UK economist at Capital Economics, said this reflected “the extraordinary fiscal support the government has put in place to see the economy through the crisis”.
The figures come as the government faces pressure to beef up support. Business groups and opposition parties have said it should maintain the furlough scheme, one of its most costly programmes, in some form.
But Sunak has vowed to wind it down by October. He has insisted that the economy must be allowed to adapt and not be kept in suspended animation by the scheme, which pays 80 per cent of the wages of workers who may otherwise be laid off.
However, the public debt pile is set to increase sharply. The government has to fund new stimulus schemes such as the “eat out to help out” discount programme and VAT cuts. The discount programme is likely to cost £500m and the VAT reductions £2.5bn.