UK national debt continues to grow as the government spends more and more money to combat the ongoing Covid-19 pandemic.
Government debt in August grew by another £35.9 billion, pushing total UK debt up to an eye-watering £2.024 trillion – the highest figure in history for Britain.
This means that UK debt is now bigger than the entire UK economy, and puts debt versus GDP at it’s highest since the 1960’s, when the UK was still paying off the astronomical debt incurred during the second world war.
Source: Office for National Statistics
The growing UK debt will have weighed heavily on Chancellor Rishi Sunak’s announcement yesterday of a new raft of financial support for workers as the government’s Job Retention (Furlough) scheme ends next month.
With the government paying billions in furloughed staff wages, the Chancellor has been firm in his refusal to extend the scheme. With businesses warning of an expected surge in unemployment when the scheme ends however, the Chancellor clearly felt that doing nothing would be just as costly.
Meeting in the middle, Sunak announced a new six-month wage top up scheme which will see the government paying a much lower portion of wages, and only for those who can work at least part-time.
The news will have been welcome for some businesses impacted by the new restrictions brought in for the UK this week. Others however have warned the new scheme will still not be enough to save jobs in industries where work has disappeared.
The question of how such unprecedented spending will be recouped it still to be answered, and with the Autumn budget now officially cancelled it seems the focus for the Chancellor is how to keep the UK’s economy as strong as possible, rather than how to pay for it.
Tax rises and reduced public spending are the simple answer, but the form they will take could be important for investors thinking about the future now. Increased taxes will make VAT and CGT-free investment products like gold coins more appealing, whilst reduced public spending could see state pensions shrink even further.
Historically low interest rates give the Chancellor the opportunity to continue borrow if he decides it’s needed, but he will be painfully aware that when it comes time to pay the bill, it is likely to be an astronomical figure that will undoubtedly set back the UK’s spending options in the future.