Pandemic drives UK budget deficit to a 75-year recordEuropost
UK announced it had posted highest budget deficit since the end of World War II, AP reported. The record high negative result was due to increased borrowing and spending, focused at offsetting the influence of the Covid-19 pandemic, The Office for National Statistics said. The biggest spendings were linked to different government stimulus programmes. Public sector net borrowing reached 303.1 billion pounds in the financial year to end-March. This was equivalent to 14.5% of the country’s annual gross domestic product, the highest level since 1946, when the deficit hit 15.2% of GDP.
The causes of the spike are simple. While tax receipts have sunk as a result of the deepest recession in more than 300 years, the government has splashed out billions of pounds trying to prop up the economy and jobs since the pandemic first struck more than a year ago. Notably, it has been covering the lion’s share of the salaries of people unable to work during the country’s many lockdowns and providing further support to hard-hit businesses.
The scale of the borrowing the government has undertaken in the wake of the pandemic is evident in the size of the increase in the deficit from 57 billion pounds in the previous financial year.
“The increase on the pre-pandemic forecast is unprecedented and highlights the extraordinary impact of the pandemic on government revenues and spending,” Isabel Stockton, research Economist at the well-respected Institute for Fiscal Studies told AP. Stockton thinks the actual deficit will end up being higher, “perhaps quite significantly,” as many businesses won’t be able to repay government-backed loans. In the post-war era the deficit peaked in the aftermath of the 2008 financial crisis, hitting around 10% of GDP. The average deficit since 1970 has been 3.4% of GDP.
The borrowing undertaken by the government has pushed public sector net debt up to 2,142 billion pounds, which is 97.7% of Britain’s GDP. This is the highest proportion since the early 1960s.