Rishi Sunak holds ‘Winter Economy Plan’ in London on Thursday. Agence France-Presse
British public borrowing surged again in August to a new record high, driven by huge outlays to combat the coronavirus pandemic, with the budget deficit so far this tax year overtaking its full-year peak during the global financial crisis.
The government has now borrowed 173.7 billion pounds ($221.8 billion) in the five months since the start of the financial year in April, outstripping the previous record of 157.7 billion pounds set in the 12 months ending March 2010.
Government budget forecasters have warned the deficit could hit 372 billion by the end of the tax year, raising borrowing as a share of gross domestic product to 18.9%, a level not seen since World War Two - and far above long-term sustainable rates.
Britain’s Chancellor of the Exchequer (Finance Minister) Rishi Sunak displayed ‘Winter Economy Plan’ with Frances O’Grady, General Secretary of the Trades Union Congress (TUC) and Carolyn Fairbairn, Director General of the Confederation of British Industry (CBI) outside 11 Downing Street in London on Thursday. After that, Sunak unveiled his ‘Winter Economy Plan’ before the parliament, amid mounting fear that the end of his furlough jobs retention scheme next month could spark mass unemployment.
Rishi Sunak said that now was the time to focus on restoring growth, not reducing borrowing, but tough decisions would be needed in the longer term. Despite this, he has cut support for people whose work remains jeopardised by the pandemic.
Sunak said that from November the government would only subsidise “viable” jobs, where people were working at least a third of their normal hours, ending a programme where the government had paid up to 80% of furloughed employees’ wages.
Sterling rose against both the dollar and the euro on Friday as investors hoped Britain’s new scaled-back job support scheme would be followed by other stimulus measures.
Sunak announced a new scheme to support jobs as COVID-19 cases surged again, but warned that the government will support only “viable” employment.
Fears that unemployment will rise when the existing furlough scheme ends next month kept investors nervous as Sunak said it is impossible to save every job during an economic meltdown that is putting millions at risk of unemployment.
Many economists and trade unions fear this could lead to a big rise in unemployment for people in sectors such as hospitality, arts and entertainment that continue to bear the brunt of government coronavirus restrictions.
Morgan Stanley economists said Sunak could need to reverse course and provide extra support.
“We think the risks to the deficit are to the upside, with the Chancellor likely to provide additional support if restrictions tighten further, or unemployment surprises,” Jacob Nell and Bruna Skarica wrote. Borrowing in August alone jumped to 35.9 billion pounds - just below economists’ average forecast of 38 billion in a Reuters poll - while July’s figure was revised down by 11 billion pounds to 15.4 billion pounds.
Britain’s Office for National Statistics said the revisions partly reflected difficulties assigning government spending to specific months.
Public sector net debt in August reached 2.024 trillion pounds - or 101.9% of GDP, the highest as a share of the economy since the 1960-61 financial year.