Trea­sury adds £50bn more to bur­geon­ing Covid debt pile

Bor­row­ing in first five months of fi­nan­cial year to hit record £275bn fu­elling fears over tax in­creases

The Daily Telegraph - Business - - Front Page - By Tim Wal­lace

THE Trea­sury is to bor­row an­other £50bn in Au­gust as it races ahead with a record debt spree to fight the coro­n­avirus pan­demic and plug a col­lapse in tax rev­enues.

It means bor­row­ing will hit £275bn in the open­ing five months of the fi­nan­cial year – an un­prece­dented pace to match the ex­tra­or­di­nary strains on the pub­lic fi­nances as the coun­try reels from the big­gest chal­lenge since the Sec­ond World War.

The fig­ures will spark con­cern that Bri­tain will be pay­ing for the cri­sis for years to come through higher taxes.

Econ­o­mists had ex­pected the staterun Debt Man­age­ment Of­fice to set out plans for Septem­ber too, but it de­cided not to amid a rapidly chang­ing sit­u­a­tion with econ­o­mists un­able to pre­dict the scale or speed of any re­cov­ery.

The na­tion’s debts are rock­et­ing af­ter Rishi Su­nak, the Chan­cel­lor, un­veiled a his­toric pack­age of state sup­port to pro­tect jobs from the rav­ages of the coro­n­avirus lock­down.

Big con­trib­u­tors to the ex­tra deficit in­clude the Chan­cel­lor’s fur­lough scheme, which the Of­fice for Bud­get Re­spon­si­bil­ity es­ti­mates will cost £60bn; sup­port for the self-em­ployed to­talling £15bn; the same amount again in busi­ness grants; al­most £12bn of cuts to busi­ness rates; and an ex­tra £16bn on pub­lic ser­vices like the NHS.

Fund­ing for an­other £40bn of tax­payer-guar­an­teed loans is not in­cluded in the es­ti­mates, with their fi­nal cost to the Ex­che­quer likely to stretch out for years to come.

Boris John­son is ex­pected to launch a £1.5bn school-build­ing blitz to boost the econ­omy af­ter lock­down, and will to­day set out other in­fra­struc­ture projects in­clud­ing de­tails of 40 new hos­pi­tals which have al­ready been promised along­side ma­jor spend­ing on hous­ing, roads, rail­ways and pris­ons.

The Gov­ern­ment is al­ready on course for the big­gest deficit in peace­time his­tory. As min­is­ters must also is­sue bonds to re­fi­nance old debts as they come due, the DMO will have to raise about £420bn this year.

Mor­gan Stan­ley ex­pects the Bank of Eng­land to add an­other £100bn to its money-print­ing pro­gramme later in 2020, mean­ing the cen­tral bank will ab­sorb £400bn of bonds in the sec­ondary mar­ket – close to match­ing all gross is­suance by the DMO.

Bank of­fi­cials have de­nied they are tak­ing part in so-called mone­tary fi­nanc­ing, a pol­icy as­so­ci­ated with hy­per­in­fla­tion in Zim­babwe and Thir­ties Ger­many where new cash is cre­ated solely to fund state debt.

The scale of the eco­nomic shock is such that the Gov­ern­ment will bor­row heav­ily for some time to come.

Econ­o­mists ex­pect pub­lic bor­row­ing to re­main at about £155bn next year, ac­cord­ing to pri­vate fore­casts col­lated by the Trea­sury.

Mean­while, Bri­tish fam­i­lies are mov­ing in the op­po­site di­rec­tion by boost­ing their sav­ings. De­posits held by house­holds jumped a record £25.6bn in May, Bank of Eng­land data re­vealed yes­ter­day, adding to a bumper cash pile built up by con­sumers over the pre­vi­ous two months.

Mort­gage ap­provals slumped to re- cord lows as the hous­ing mar­ket en­tered deep freeze and con­sumers con­tin­ued to cut their debts, pay­ing down credit cards and re­duc­ing over­all lend­ing for a third con­sec­u­tive month.

Re­pay­ments on con­sumer credit dropped to £4.6bn in May, down from £7.4bn the pre­vi­ous month.

Sa­muel Tombs, of Pan­theon Macro, said: “House­holds’ spend­ing likely will re­bound over the sum­mer, as some re­cently ac­cu­mu­lated cash is spent.”

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