Economy

UK government debt passes £2 trillion mark for first time

Milestone will stoke debate about how country will finance support for Covid-19-hit economy

A video grab from footage broadcast by the UK Parliament’s Parliamentary Recording Unit (PRU) shows Britain’s Chancellor of the Exchequer Rishi Sunak delivering his Summer Economic Statement in the House of Commons in London

Fri Aug 21 2020 - 07:34

UK government debt passed the £2 trillion (€2.23 trillion) mark for the first time, a milestone that will stoke the debate over how the country will finance its unprecedented support for the pandemic-ravaged economy.

It means the size of Britain’s debt now exceeds 100 per cent of economic output, the heaviest debt burden since the early 1960s, the Office for National Statistics said on Friday.

The data will add to the pressure on Chancellor of the Exchequer Rishi Sunak to say how long he is prepared to allow borrowing to accumulate unchecked. Few are calling for immediate action, though.

Debt-servicing costs are at record lows and economists have warned that withdrawing fiscal support prematurely could trigger an unemployment crisis and kill the recovery from the deepest slump in living memory.

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The figures reflect the loss of tax revenue after the lockdown imposed in March plunged the economy into a record recession, as well as the vast cost of government spending programs deployed to keep businesses and jobs afloat amid the pandemic.

In July, the budget deficit totaled £26.7 billion, taking borrowing in the first four months of the fiscal year to £150.5 billion. That is close to the shortfall of 158.3 billion pounds recorded in the year following the global financial crisis. But while Sunak has ruled out a return to the austerity that his predecessor George Osborne pursued, he has acknowledged that the government finances will have to be put on a sustainable footing in the medium term.

Last week, following the publication of data showing the economy contracted a record 20.4 per cent in the second quarter, he warned of “difficult decisions” ahead -- a hint that higher earners could face tax increases. - Bloomberg

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