COVID-19 Drives UK National Debt to Highest Ever

Figures from the Office for National Statistics showed public sector net debt increased by £227.6bn over the past year to £2,004bn in July, taking the national debt to 100.5% of GDP for the first time since March 1961.

With only a few months until the chancellor, Rishi Sunak, is expected to hold his first full budget, the figures are a significant milestone and underscore the scale of the rescue program.

Sunak is understood to be keen to limit further growth in the deficit, despite pleas from industry for him to extend several subsidy schemes he has introduced, especially the furlough scheme that ends in October.

City economists said the spiraling deficit was increasing at a slower pace than expected, mainly because of more resilient VAT receipts, to give the Treasury a temporary boost.

However, a multibillion-pound subsidy payment to self-employed workers this month and an expected rise in unemployment during the autumn as the furlough scheme comes to an end was likely to accelerate the need for extra borrowing, they said.

In July the government needed to borrow £26.7bn, which was £28.3bn more than in July 2019 when the UK ran a small surplus.

The ONS said the July borrowing figures ranked as the fourth highest borrowing in any month since records began in 1993.

Since April, the UK has borrowed £150bn, an increase of £128bn on a year ago.

Most of the increase can be attributed to the government’s rescue programmes to support the health service and fight the virus, while also making up for a plunge in tax revenues as companies and households hunkered down to ride out the pandemic.

The ONS said: “The coronavirus (COVID-19) pandemic continues to have a significant impact on the UK public sector finances, The Guardian reported.

“These effects arise from both the introduction of public health measures and from new government policies to support businesses and individuals.”

The Office for Budget Responsibility, the Treasury’s independent economic forecaster, said earlier this year that it expected the government to borrow £322bn this year.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said: “Borrowing currently is on track to total about 17% of GDP in this fiscal year, a trajectory that likely will prompt the chancellor to be relatively cautious when he draws up further measures to support the economy in the budget later this year.

Over the last four months, the UK has almost borrowed as much it did in the 12 months after the financial crisis.

The deficit surged to almost £160bn in the 2009-2010 financial year because of the cost of bailing out the banks and handling a deep recession.