UK debt is now bigger than the entire economy
The Prime Minister yesterday warned of ‘painful times ahead’ after a record borrowing binge pushed the national debt above the size of the entire economy.
The vast hole blown in the public finances by the coronavirus crisis was laid bare in figures from the Office for National Statistics showing total government debt surged to £1.95trillion in May.
This is 100.9 per cent of Britain’s entire annual output, and marks the first time total government debt has exceeded GDP since 1963, when the country was still weighed down with debt from the Second World War.
The grim milestone was reached after the UK plunged £55.2billion into the red last month, taking Britain’s borrowing binge in the first two months of lockdown to £103.7billion.
Underscoring the toll that the coronavirus crisis has taken on the public finances, the amount borrowed last month is roughly the same as the Office for Budget Responsibility predicted in March the UK would have to borrow during the whole year.
Income from tax, National Insurance
and VAT all slumped as the lockdown forced businesses to close and households to stay at home.
Meanwhile, the spiralling costs of emergency measures to protect businesses and jobs, including £10.5billion on the Job Retention Scheme for furloughed workers, pushed the public finances deeper into the red.
economists warned public borrowing is on track to exceed official foresome casts of just under £300billion this year, twice as much as during the recession more than a decade ago.
The Institute for Fiscal Studies insisted that the public should not be too alarmed by the surge in debt, as it has been fuelled by emergency measures the Government has taken to protect the economy.
But the UK’s most respected economic think-tank also warned households would have to ‘live with a mix of tax rises alongside an acceptance of higher debt’ after the initial crisis passes.
Boris Johnson has refused to rule out tax rises to help pay for the crisis but insisted there will be no repeat of the austerity drive that followed the last financial crisis. Yesterday, he said: ‘I do think the British economy is remarkably resilient, we will come out of this in the end. But there will be some difficult times ahead.
‘There has been a massive lack of economic activity for a very long time – of course that is going to be painful and expensive to make up. But we are a very creative and dynamic society, we will come back.’
The comments come just a day after the 61-year-old Bank of england Governor Andrew Bailey warned Britain faces the sharpest rise in unemployment in his lifetime, in the worst recession in more than 300 years.
Amid growing pressure from business leaders to relax the two-metre social distancing rule, Chancellor Rishi Sunak said that ‘the best way to restore our public finances to a more sustainable footing is to safely reopen our economy so people can return to work’.
‘Painful and expensive’