The UK government broke records on rising debt levels, cash requirements, and borrowing in May, as the cost of the COVID-19 pandemic pushed public finances to their limit.
The Office for National Statistics and the Treasury said on Friday that government debt climbed to 100.9% of UK GDP in May — the first time public debt has breached 100% of economic output since 1963. The national debt stood at £1.9tn ($2.33tn) at the end of last month.
The rise was partly driven by record state borrowing in May. The government borrowed £55.2bn last month, nine times what it borrowed in the same month last year and the highest monthly figure since records began in 1993. Economists had expected borrowing of £50bn.
The government has now borrowed over £100bn in just the last two months, another record.
“The Treasury needed to raise more cash in the first two months of this fiscal year than in total in any prior 10 fiscal years,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, wrote in a note to clients on Friday morning.
The surging borrowing has been driven by the COVID-19 pandemic, which has forced the government to put in place economic support measures unprecedented in modern times.
The cost of paying furloughed workers’ wages, support the transport network, and lend money to businesses has pushed the government’s monthly cash requirements to £62.7bn in May — over £40bn more than it needed this time last year and another record high.
Meanwhile, tax receipts fell by 31% in May, driven by declines in value-added-tax (VAT) and national insurance.
“Today’s figures confirm that coronavirus is having a severe impact on our public finances,” Chancellor Rishi Sunak said in a statement.
“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 this week, as we kick start out economic recovery.”
Tombs said: “Emergency measures to prevent the sudden collapse in economic activity triggering a tsunami of corporate collapses and loan defaults have placed a colossal burden on the public finances.”
He said costs and borrowing were likely to decline in the coming months as government-backed business loan schemes wind up and the furlough scheme comes to an end. Tax income should also improve.
“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,” Tombs said.