UK government debt hits £2.1 trillion after record borrowing during second lockdown

Government borrowing hit a record £31.6bn in November as coronavirus case numbers rose and the chancellor, Rishi Sunak, extended support for millions of workers whose jobs were under threat.

With non-essential shops and pubs across England closed for a second national lockdown, tax receipts came in £3.2bn lower than in November last year, official figures show.  

Borrowing rose to £240.9bn for the first eight months of the financial year – £188.6bn more than the same period last year.

Total debt surged to £2.1 trillion, or 99.5 per cent of the UK’s gross domestic product.

Among the biggest items of expenditure was the furlough scheme, which pays up to 80 per cent of affected workers’ wages. Rishi Sunak was forced into a last-minute extension of the scheme when it became clear Covid-19 was surging and new restrictions would need to be brought in.

Last week, the chancellor extended the scheme again until the end of April next year.

HMRC figures show that £3.4bn worth of claims were made between 15 November and 13 December, taking total claims to £46.4bn.

The Office for Budget Responsibility forecasts that borrowing could reach £393.5bn by the end of the financial year.

Since the start of the pandemic the Bank of England has also created £450bn of new money to buy up government debt. This has helped push borrowing costs to their lowest level on record, with the result that, while government debt has increased dramatically this year, the total amount spent on interest payments has gone down.

The chancellor said this month that it was wrong “morally, economically and politically” to continue borrowing, and hinted that tax hikes and spending cuts could be on the way.

Many mainstream economists who have argued that a spending squeeze before the economy is thriving again would cause further, unnecessary damage to businesses and jobs.  

The UK is experiencing the worst economic contraction of any of the G7 group of rich nations. 

Hinesh Patel, portfolio manager at Quilter Investors, said the government has “no credible alternative”, other than spending large sums to support the economy.

“The pandemic overrides everything else and the government will throw caution to the wind by fighting it now, and paying back later, made possible by the sponsorship of the Bank of England,” he said.

“The absence of government spending in this moment could spell disaster and have ramifications for years to come.  

“Thanks to the furlough scheme, unemployment remains at just 4.9 per cent, only 1.2 per cent higher than the same time last year, which is remarkable when you consider there will be some businesses that haven’t opened their doors at all since late March.”