Biggest peacetime deficit after Rishi’s borrowing spree

Britain is heading towards its biggest ever budget deficit in peacetime due to the soaring health and economic costs of the pandemic.

Data shows that Government borrowing in the first five months of the financial year was £221.4billion.

the rapidly accumulating borrowing means that the national debt passed a new landmark in august when it reached £2.023trillion.

this equates to 101.9 per cent of the total national output in a full year.

record low interest rates make the unprecedented debt burden tolerable for the time being. But if there were to be a shock increase in inflation, which required interest rates to be raised from 0.1 per cent, the credibility of Britain on the financial markets could be shot through and the UK plunged into crisis.

Some in the treasury have warned that tax rises may be necessary to pay for the Covid borrowing splurge, and on thursday the Chancellor rishi Sunak hinted at changes to come, warning he would have to make ‘very difficult decisions’ in future.

But yesterday Downing Street said the ‘ triple tax lock’ would not be affected.

this pledge – to freeze Vat, income tax and national insurance for five years – was in Boris Johnson’s electionwinning manifesto.

Economists at the institute for Economic and Social research are calling on the Chancellor to draw up a longterm plan for restoring public finances. Forecasts stretching forward five years are normally provided by the treasury in the budget.

But earlier this week Mr Sunak cancelled november’s budget because of the huge uncertainties over tax receipts and Government spending.

in august the Government borrowed £35.9billion which is more than seven times the £5.4billion in the same month last year. But analysts pointed out the numbers could have easily been worse.

tax receipts, which were 14.4 per cent lower than in the same month of 2019, came in better than expected thanks to the economic bounce-back that began in June. total borrowing for the 2020-21 fiscal year is now seen as reaching £372billion or 18.9 per cent of the nation’s total output.

that would be the biggest pile up of red ink since the Second World War, when the deficit soared to above 25 per cent of GDP.