National Debt now bigger than the UK economy
The government's emergency measures in the wake of the Covid-19 pandemic have caused the country's debt to exceed GDP for the first time in sixty years.
The cost of the jobs retention scheme and the closure of huge swathes of the economy meant that the government borrowed £55.2 billion in the month of May. This is more than double the total amount of borrowing for the fiscal year ending March 2019.
This has pushed the debt to GDP ratio from 85.2% at the end of March to 100.9% today, with the total figure standing at £1.95 trillion.
According to The Times, the £55.2 billion pounds of borrowing is likely to increase seven fold over the next few months, which will mean it is more than double the £150 billion that was recorded during the 2008/9 financial crisis.
Responding to the news, Rishi Sunak, the chancellor, said:
'Today’s figures confirm that coronavirus is having a severe impact on our public finances. 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.
'We’ve set out our plan to do this in a gradual and safe fashion, including reopening high streets across the country this week, as we kickstart our economic recovery.'
This is the first time national debt has exceeded GDP since 1963, when Britain was hugely indebted as a result of the Second World War.
The Institute for Fiscal Studies played down the significance on the grounds that the purpose of the borrowing was to secure a subsequent recovery.
Samuel Tombs, chief UK economist at Pantheon Economics, said:
“The central government net cash requirement should decline over the coming months, now that Covid grants to small and medium-sized entreprises have been paid out and the coronavirus job retention scheme is closed to new joiners and will be fully wound down by October. Tax receipts will pick up as GDP recovers too.
“Nonetheless, the Treasury’s demand for cash will remain high by past standards, given the prospect of rising unemployment and the likelihood that the chancellor will attempt to reinforce the recovery with a stimulative budget later this year.”