Debt Disaster: UK’s Economy Buckles as UK Debt Skyrockets Past 100% of GDP in 2023 – First Time in 60 Years!
In a blow to Rishi Sunak’s plans to cut taxes before the general election, net debt reached £2.6tn at of the end of May
In May, UK’s government debt surpassed 100% of yearly national income – a feat unseen since 1961. Official data revealed doubled state borrowing, dealing a blow to Rishi Sunak’s tax-cutting pre-election strategy. The Office for National Statistics (ONS) reported a £2.6tn net debt by May-end, about 100.1% of GDP.
This marks the first time the debt-to-GDP ratio breached 100% since March 1961, excluding a brief Covid-19 spike later adjusted due to robust GDP data. The debt hike resulted from a £20bn surge in government borrowing, attributed to energy support, inflation-linked benefits, and debt interest payments.
In a financial development that has set tongues wagging, the UK’s government debt has reached unprecedented heights, reminiscent of a bygone era – 1961 to be precise. This soaring debt scenario is causing no small amount of concern, as it throws a spanner in the works of the government’s pre-election plans, including potential tax breaks.
As per the latest figures, the debt load surged to a staggering £2.6tn by the close of May – a mountain of zeros that stretches to the heavens. This mountain of debt has now surpassed the entire annual earnings of the nation, known as the GDP.
For the first time in decades, the debt-to-GDP ratio has vaulted past the 100% mark, akin to owing more money than the nation is making. While a similar surge was witnessed during the COVID-19 pandemic, subsequent revisions due to resilient GDP data toned down its impact.
So, what led to this debt surge? Government borrowing rocketed to a hefty £20bn in May, driven by factors such as energy support endeavors, inflation-linked benefits, and the mounting interest on previously borrowed sums.
In a nutshell, the UK’s financial landscape has been painted a tad tumultuous. The government finds itself juggling the task of managing this colossal debt while striving to uphold its commitments to the public. The imagery is akin to a skilled plate-spinner attempting to keep the act going without any unfortunate crashes.
Recent data reveals a borrowing figure £3bn lower than April but £10.7bn up from a year ago, marking the second-highest May borrowing since records began in 1993.
Tax receipt hikes partially offset debt payment escalations. Observers noted Chancellor Jeremy Hunt’s austerity measures were taking effect, yet surges in revenue and cuts in everyday expenditure couldn’t stave off a considerable monthly deficit rise.
Hunt asserted the government’s commitment to prudent fiscal management amid post-pandemic challenges and Russia’s Ukraine invasion. He stated, “Difficult decisions” were imperative to ensure future generations aren’t burdened with insurmountable debt, spotlighting the quest to halve inflation, foster economic growth, and shrink debt.
Economic adviser Martin Beck from EY ITEM Club highlighted that, with two months of the fiscal year’s figures available, borrowing already exceeds recent Office for Budget Responsibility (OBR) estimates. Beck predicted this disparity would grow in 2023-24 due to stronger-than-anticipated GDP and inflation. This positive impact on tax revenue would, however, be counteracted by mounting spending pressures.
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, noted that to regain trust, the government must consider tax cuts only with significant inflation reduction and more modest interest rate hikes than currently anticipated. Right-of-centre group TaxPayers’ Alliance urged Hunt to implement more substantial spending cuts to create room for tax reductions.
Recent May figures highlighting the consumer prices index at 8.7% have sparked concerns about whether the Chancellor can consider easing fiscal plans by the autumn statement, according to experts.
The toll of inflation has already resulted in billions of pounds in extra government expenditure. The Office for National Statistics (ONS) approximates that the Treasury spent around £1.5bn on energy support initiatives during May. This includes the energy price guarantee (EPG), capping average bills at £2,500 annually, and the energy bills discount scheme (EBDS). In the initial six months alone, these schemes are estimated to have cost the UK a whopping £29.7bn.
Originally slated from October to March, the EPG’s term was prolonged until July. It will subsequently make way for Ofgem’s price cap on average yearly energy bills, commencing on 1 July, set at £2,074.
The figures further unveiled that the interest paid on central government debt amounted to £7.7bn in May. While £200m less than the previous year, this still exceeded the OBR’s forecast by £700m.
Borrowing in the initial two months of this financial year has surged to £42.9bn – an astonishing £19.6bn above the tally for the same period the previous year.