Public sector debt in Britain has breached £2 trillion for the first time as government borrowing hit £26.7bn in July. The Office for National Statistics (ONS), which published the figures on Friday, said borrowing for July was £28.3bn more than the same period last year, and the fourth highest since records began in 1993.
Debt reached £2.004 trillion for the first time, and is up around £227.6bn from a year ago. By the end of July, debt was 100.5 per cent of gross domestic product (GDP) for the first time since March 1961, said the ONS.
The coronavirus pandemic had “an unprecedented impact” on borrowing, as the government throws billions at the economy in a bid to keep it afloat as lockdown devastated some industries.
Responding to the new figures, the chancellor Rishi Sunak said: “This crisis has put the public finances under significant strain as we have seen a hit to our economy and taken action to support millions of jobs, businesses and livelihoods.
“Without that support things would have been far worse.
“Today’s figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions.”
He added the government was taking action to support businesses through its “plan for jobs” scheme, which is “protecting, supporting and creating jobs to ensure that nobody is left without hope”.
A report published by the Office for Budget Responsibility suggests that borrowing in the current financial year, between April 2020 to March 2021, could increase to £322bn, around six times the amount borrowed in the financial year ending March 2020.
The nationwide lockdown meant people were earning and spending much less. As a result, the public did not pay as much taxes, which drove government income down, leading to the need to borrow.
Measures taken by the government to mitigate the impact of the coronavirus crisis, including the furlough scheme, meant borrowing much more money than it.
Although the £2 trillion figure seems insurmountable, the pandemic made it inevitable as tax revenue nosedived and government spending on schemes and grants to help people and businesses skyrocketed.
But analysts have said the interest rates the government has to pay are at an all-time historic low, therefore meaning the cost of servicing its debts is lower than initially predicted.
According to Andrew Harding, chief executive of management accounting at the Association of International Certified Professional Accountants, the low interest rates mean the government can currently increase its spending at “an incredibly low cost”.
“The government should take advantage of the situation to borrow for long-term financial return and tackle systemic challenges in the economy,” he added, calling on the government to create more opportunities for SMEs and entrepreneurs and invest in green infrastructure, as well as infrastructure to support business growth.