by Peter Franklin
Friday, 23
April 2021

Highest level of borrowing since the War? Don’t worry about it!

We should still be confident about our position coming out of the crisis
by Peter Franklin
Let the man borrow. (Photo by Dan Kitwood/Getty Images)

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”.

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.

Join the discussion

  • 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.

  • 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!

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