UK deficit may bal­loon to £500bn for this year and next

The Daily Telegraph - Business - - Summer Statement - By Tim Wal­lace

THE Trea­sury is set to bor­row half a tril­lion pounds over two years as the cost of bat­tling the coro­n­avirus and lock­down re­ces­sion mounts.

This year’s deficit will come in at about £350bn, ac­cord­ing to the In­sti­tute for Fis­cal Stud­ies – a record for any peace­time year.

It will fall by more than half to £150bn next year, the an­a­lysts es­ti­mate, which still al­most matches the £158bn bor­rowed at the peak of the fi­nan­cial cri­sis.

This debt mountain will pose a chal­lenge to Rishi Su­nak and his suc­ces­sors as chan­cel­lor for many decades to come as a re­sult.

Carl Em­mer­son, of the IFS, said: “What is clear is that we are go­ing to bor­row more as a share of GDP than we did at the peak of the fi­nan­cial cri­sis, and the UK will bor­row more as a share of GDP than it has done in the last 300 years out­side of the two world wars.

“Manag­ing that el­e­vated debt will be a task not just for the cur­rent Chan­cel­lor but also many of his suc­ces­sors. It is go­ing to take decades be­fore we man­age that back down to the lev­els we were used to be­fore this cri­sis.”

The ex­tra spend­ing and tax cuts in­clude the lat­est £30bn pack­age an­nounced by Mr Su­nak.

This in­cludes a bonus for busi­nesses that take back fur­loughed staff, which could amount to more than £9bn; a cut to VAT for the hos­pi­tal­ity in­dus­try with a value of £4.1bn; lower stamp duty by rais­ing the thresh­old to £500,000, which amounts to al­most £4bn of taxes; and a green homes grant of £2bn.

A sim­i­lar stamp duty freeze helped drive up trans­ac­tions in the wake of the fi­nan­cial cri­sis, the IFS said.

The Chan­cel­lor also dis­closed an ex­tra £33bn for pub­lic ser­vices since March on top of that pre­vi­ously pub­li­cised, with most go­ing to the NHS.

The IFS said that an ex­tra £31.9bn has al­ready been spent on the NHS since the Bud­get. Fur­ther­more, al­most £5bn has gone to lo­cal govern­ment and so­cial care, just over £5bn for pub­lic trans­port, £1.2bn for schools and £4.1bn for the Scot­tish, Welsh and North­ern Ir­ish ad­min­is­tra­tions.

The IFS also said the fur­lough fig­ures high­light the se­ri­ous ef­fect of the pan­demic and lock­down on the younger gen­er­a­tion, with more than 40pc of un­der-25-year-olds ei­ther fur­loughed or not work­ing.

Only around one quar­ter of 35 to 54-year-olds are in the same po­si­tion.

Mr Em­mer­son said: “At the mo­ment the Govern­ment is bor­row­ing in­cred­i­bly cheaply. We think debt in­ter­est spend­ing over the next few years is likely to be lower than we thought in March, de­spite the ex­tra bor­row­ing.”

How­ever, low rates are not guar­an­teed to con­tinue for­ever, pos­ing a se­ri­ous po­ten­tial risk to the state’s fi­nan­cial health in fu­ture.

Mr Su­nak said he in­tends to fo­cus on sta­bil­is­ing the pub­lic fi­nances in the com­ing years, but has given lit­tle de­tail on the form that might take.

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