Rishi Sunak gets quizzed over public sector pay freeze
Debt in the UK has reached unprecedented levels this year as Rishi Sunak and the government was forced to respond to coronavirus. Billions has been spent on keeping the economy afloat and new data from the ONS illustrates just how much has been accumulated.
Public sector net debt (excluding public sector banks) rose by £301.6billion in the first eight months of the financial year to reach £2,099.8billion at the end of November 2020, £303billion more than in November 2019.
The ONS explained the extra funding was required to support government coronavirus support schemes which, when combined with reduced cash receipts and a fall in gross domestic product (GDP) all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s.
Hinesh Patel, a portfolio manager at Quilter Investors, broke the figures down in more detail: “With a little help from the Bank of England, the Government continued to shake the magic money tree in November with a further £31.6billion in borrowing over the month, the third highest borrowing in any month since records began in 1993.
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“The debt to GDP ratio now stands at 99.5 percent of GDP, a level not seen since Harold Macmillan occupied Downing Street in 1962.”
Many organisations and individuals are worried about how much debt has been built up this year, with some wondering if the potential long-term economic damage will be worth it.
However, Hinesh went on to commend the government’s efforts, noting the alternatives would have been unpalatable: “The borrowing looks disastrous, but there is simply no credible alternative to splashing the cash while the government attempts to pull the economy from its Covid-induced slumber.
“In reality, the pandemic overrides everything else and the Government will throw caution to the wind by fighting it now, and paying back later, made possible by the sponsorship of the Bank of England.
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“The absence of government spending in this moment could spell disaster and have ramifications for years to come. Thanks to the furlough scheme, unemployment remains at just 4.9 percent, only 1.2 percent higher than the same time last year, which is remarkable when you consider that there will be some businesses that haven’t opened their doors at all since late March.”
During the pandemic, some families managed to actually build up their savings as millions were forced to work from home.
While adapting to this would have been hard for some industries, others saw few limitations and many people saw their income rise as travel expenses lowered.
Rishi Sunak recently touched on this and he reportedly detailed hope these stockpiles would be spent as normality returns and consumers are let loose.
Hinesh shared similar sentiments and concluded by examining what impact a vaccine could have on spending: “One positive unintended consequence of this crisis has been to put the household balance sheet in its strongest position for decades.
“While many will have suffered a hit to their incomes or will have lost their jobs as a result of the pandemic, there will be many more who will have managed to put more aside month after month and will have saved a substantial sum since March.
“We will be relying on these households to wake the economy from its hibernation in a big way next year and to sponsor the recovery through increased consumption.
“There’s no denying that with each vaccine delivered, the pressures on the Chancellor to turn off the spending taps will grow stronger, and the recently announced Budget on March 3 2021 could lay the foundations for Sunak to begin reeling in the spending and bringing forward a plan to bring the borrowing back down to a sustainable level.”
On December 17, HM Treasury confirmed the next budget would be published in March and it will specifically focus on the government’s plans to tackle the virus, protect jobs and address forecasts from the Office for Budget Responsibility (OBR).
The same day, the Chancellor announced the furlough scheme would be extended to April 2021.
Additionally, it was revealed businesses would have until the end of March to access the government’s loan schemes and Rishi welcomed the announcement with the following comments: “Our package of support for businesses and workers continues to be one of the most generous and effective in the world – helping our economy to recover and protecting livelihoods across the country.
“We know the premium businesses place on certainty, so it is right that we enable businesses to plan ahead regardless of the path the virus takes, which is why we’re providing certainty and clarity by extending this support, as well as implementing our Plan for Jobs.”
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