UK Govt debt exceeds 100% of GDP – nears £2 trillion

The debt of the UK government at the end of May 2020 was 100.9 % of gross domestic product (GDP), the first time that debt as a percentage of GDP has exceeded 100% since the financial year ending March 1963.

That’s according to the latest report from the UK’s Office for National Statistics (ONS) which said the coronavirus pandemic “has had an unprecedented impact on borrowing.”

The ONS said UK government debt at the end of May was £1.95 trillion, an increase of £173.2 billion — or 20.5 percentage points — compared with May 2019, the largest year-on-year increase in debt as a percentage of GDP on record.

Latest published figures from the UK’s Office for Budget Responsibility’s (OBR) coronavirus reference scenario suggest that borrowing in the current financial year (April 2020 to March 2021) could be £298.4 billion, around five times the amount borrowed in the latest full financial year (April 2019 to March 2020).

Central government net cash requirement in May was £62.7 billion, £46.1 billion more than in May 2019, “the highest cash requirement in any May on record ….” said the ONS.

“Central government net cash requirement in the current financial year-to-date (April to May 2020) was £126.2 billion, £119.4 billion more than in the same period last year; the highest cash requirement in any April to May period on record (records began in 1984) …” said the ONS.

“The coronavirus (COVID-19) pandemic has had an unprecedented impact on borrowing. 

“The £55.2 billion borrowed by the public sector in May 2020 is the highest monthly total on record (records began in January 1993).”

The ONS added: “Although the impact of the pandemic on the public finances is becoming clearer, its effects are not fully captured in this release, meaning that estimates of national accounts-based (accrued) tax receipts, borrowing and GDP in particular are subject to greater than usual uncertainty. 

“Given this uncertainty, we place a greater emphasis than usual on our leading cash measure, the central government net cash requirement (CGNCR), the amount of cash needed immediately for the UK government to meet its obligations.”

Paul Craig, portfolio manager at Quilter Investors, said: “The deterioration in public finances was driven by a 31.3% fall in government tax receipts compared with this time last year in conjunction with a 49.7% increase in government spending caused by efforts to stabilise the economy and prevent wholesale job losses. 

“In fact, the government received less in VAT cash receipts than they paid out in VAT cash repayments, completely eradicating their second biggest source of revenue. 

“As a consequence, the government borrowed £55.2bn in May 2020, the highest monthly total on record. 

“But while the public finances are flashing red today, concerns around the level of borrowing shouldn’t be overstated. 

“What matters most is the ability of the government to service this debt. 

“Recent gilt purchases by the Bank of England will more than offset the deficit for the month and yesterday’s announcement from the MPC to boost gilt purchases should calm the nerves at the Treasury and Threadneedle Street.

“What will keep both the Chancellor and investors awake at night is figuring out exactly how authorities intend to withdraw the life-support machine and exit the fiscal and monetary expansion while preserving demand and stabilising the job market. 

“Spending the money is the easy part. 

“The depth of the downturn matters less than the duration of the downturn, so now is the time for the Chancellor to be considering a targeted fiscal stimulus to help the construction and manufacturing sectors among many others. 

“Forget the pubs and potholes populist budget seen in March, it should be newbuilds and Nissans the next time round. Positive news for the UK mid-cap equity sector.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.