April 23, 2021 - 2:28pm
The bill’s just come in. The first instalment anyway.
We all knew that the Government would be borrowing billions extra to get us through the Covid crisis, but just how much extra is laid bare in the official figures released this morning.
Public sector net borrowing for the 2020-21 financial year was £303.1 billion — that’s roughly five times what we borrowed the previous year. As the Office for National Statistics points out, government borrowing as proportion of GDP is at its highest level “since the end of World War II”.
Public sector net borrowing was £303.1 billion in the financial year ending March 2021 – £246.1 billion more than the previous year.
This was 14.5% of GDP, the highest proportion since the end of World War II, when it was 15.2% in 1945 to 1946 https://t.co/p64qO7vJ8E pic.twitter.com/pNCqMeQA74
— Office for National Statistics (ONS) (@ONS) April 23, 2021
And yet things aren’t quite as bad as they might seem.
Firstly, while £300 billion (and change) is a lot of money, it’s about £90 billion less than was being predicted at the start of the year.
Secondly, the interest rates we’re paying on our national debt are very low by historical standards. The ONS reports that the interest that HMG paid on its debts last year (£38.8 billion) was nearly £10 billion less than the year before.
Thirdly, don’t forget that the largest share of the public debt issued by the Government is purchased and owned by the Bank of England. This is money that the British state effectively owes to itself. So we’re not about to be foreclosed upon.
Fourthly, whatever our qualms about using funny money printed by a central bank to buy up government debt, let’s give thanks for the fact that the Bank of England is our central bank. That’s not the case in the Eurozone where indebted national governments are beholden to the European Central Bank. Indeed, the more that Eurozone countries have borrowed the more they’ve become dependent on the ECB — not a healthy situation.
Finally, at least the British government’s borrowing money for British government expenditure. If we were still in the EU we’d be borrowing money to fund spending in other EU countries too. This rescue fund is supposed to be a one-off emergency measure — but the German Greens (now in pole position to take control of Europe’s largest economy) want a “common fiscal policy.”
So despite the horrifying national cost of Covid and lockdown, we should be confident about our position coming out of the crisis. We must return to normality in our day-to-day public finances, but also borrow to make long-term investments in leading-edge research, clean infrastructure and advanced manufacturing capacity.
These things have served us well during the crisis — and our future prosperity depends on building upon our strengths.
Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.
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Subscribe“Firstly, while £300 billion (and change) is a lot of money, it’s about £90 billion less than was being predicted at the start of the year.”
That’s hardly cause for celebration. That’s like saying we crashed the car and dented a few body panels but we didn’t quite right it off!
Minus 10% GDP with an increase of 14.5% of GDP in government debt equals a GDP drop of 25% without that debt increase, as it went directly and solely into upholding consumption.
And with the public sector being roughly half the economy and suffering ZERO, the real damage was and is then solely in the private sector, which really halved then, and that skewed towards small and midsize businesses and certain sectors.
That destruction was and is just criminal and in truth not recoverable (Zombies).
Let’s also not forget that this is just the beginning of the spending madness, as the government and much of the public, especially the foolish Young, have now fully embraced MMT, as further Covid 22, 26, 26 and climate change lockdowns will most likely be upcoming, and as most of that money was and is completely wasted on unproductive and useless things, like unstandardized
tests and testing instead of sensible and productive ones or even investments.
This reckless experiment will end like all previous ones did: in a catastrophe, likely a currency reset post a hyperinflation.
The only good thing then will be that those who are responsible for it and benefitted from it for a while, the bloated public sector and its workers and pensioners, will be in the poorhouse thereafter, for a generation.
Study German civil servants salaries and pensions post 1945 until the mid 70s for what you will deservedly face then.
The public sector does not seem to realize that every business that has been destroyed means less taxes are paid into the system. I was reading an article about subsidized theatre and instead of choosing to put on well staged and acted plays that attract lots of people they seem to be going out of their way to repel even the most ardent theatregoer.
I told the wife that we are only £1 million in debt and not £2 million in debt as I had feared. She was so relieved.
What kind of argument is that?
Which means that private sector net financial saving was £303.1 billion in the same period. That’s what Gilts are – savings products – for people who don’t want to spend yet.
It’s not hard to understand. Over the last year people haven’t had much to spend their money on. They’ve been getting a lot from government and not spending it which is why the tax take is down. That’s shows up as extra net saving. Hence more Gilt sales.
What’s so wrong with saving?
All of the public debt is ‘purchased’ by the Bank of England by default. Selling Gilts and Bonds is to stop them holding it all.
All we have to do to make the BoE own it all is remove KPI1.1 at the Debt Management Office and that happens automatically. See pp35 of the Debt Management Office Annual Review 2020
The interest rate could be zero if we want it to be. Stop selling Gilts and Bonds, and all the debt becomes floating rate rather than fixed rate. Then we set the base rate to zero. Problem solved.
The banks then get what they deserve on their excess reserves – nothing. They should be out lending money to business, not leaching welfare payments from government.
QE caps interest rates across the yield curve. For yields to go up prices have to go down. If a Gilt drops below par then the BoE buys it out of circulation stopping the price going down any further and saving government money by eliminating an interest payment to the private sector. There is no mechanism for interest rates to go up unless the Bank allows it.
It’s well documented that government spends first and then sells Gilts and Treasury Bills to hoover up the excess reserves for monetary policy purposes.
Why are we still propagating borrowing as a relevant concern? It’s just swapping a Floating Rate Perpetual debt for a Fixed Rate Term debt. Hardly newsworthy for those that understand the process.
I don’t understand why an article on UK GOV debt has to turn on EU/EZ but the author is clearly clueless.
Yes, EU Countries are “depended” on ECB the same way that UK is depended on BofE. So unless (does the author foresee this?) ECB will abandon Italy or France what is the problem?
Since 2007/8 crash € has gone up and £ has gone down!
At the end of the day (US and $) you want to be part of a “big” currency and € is the 2nd largest reserve currency in the world.
UK GOV Is spending (borrowed) money like a pimp with a week to live! A year from now (assuming that C19 is over) the core problem of UK economy will be the same: low productivity and and economic growth model based on domestic consumption fueled by debt.
“Yes, EU Countries are “depended” on ECB the same way that UK is depended on BofE”
That’s untrue. The distinction is crucial: the Bank of England is the tool used to control the UK’s monetary policy, while the government carries out fiscal policy. In both cases it’s the UK as a whole that the policy applies to. In the Eurozone this is not the case: fiscal policy is broadly the responsibility of the national governments in the Eurozone, but their monetary policy is controlled by the ECB. This makes stable fiscal policy across the bloc virtually impossible, and has led to dangerous imbalances in the respective liabilities of the national central banks of the Eurozone nations. This is why the Target2 ledger exists, which tracks capital flows across the internal national borders amongst Eurozone members, and has resulted in Germany being owed over a trillion Euros by the Eurozone periphery economies which earns no returns and which can never be repaid.