The British government‘s debt has reached 100% of the country’s economic output for the first time in recent history. This has resulted in a large budget deficit last month, adding to the challenges faced by finance minister Rachel Reeves as she prepares her tax and spending plans.
According to the Office for National Statistics, public sector net debt, excluding public sector-owned banks, has increased to 100% of GDP, up from 99.3% in July, marking the first time since monthly records began in 1993.
Bank of England records indicate that debt was last at this level on a regular basis in the early 1960s when Britain was still dealing with the financial aftermath of World War II.
Government debt has significantly risen during the global financial crisis and the COVID-19 pandemic. Additionally, weak economic growth has also contributed to the increase as a share of gross domestic product.
In August, the government borrowed £13.734 billion ($18.29 billion), which is £3.3 billion more than in August last year. A Reuters poll had projected a deficit of £12.4 billion. The data reveals an increase in spending on social benefits and current expenditure, reflecting higher than usual inflation.
Rachel Reeves has indicated that taxes will rise in her October 30 budget. However, she has ruled out increases in rates of income, corporation, and value-added taxes, leaving little room for manoeuvre to enhance public services and stimulate investment.
“The August public finances figures highlight the challenging fiscal position facing the Chancellor ahead of her first budget,” said PwC economist Gora Suri.
So far, the government has borrowed £64.1 billion in the first five months of the 2024/25 financial year, which is approximately £6 billion more than the forecast published by the Office for Budget Responsibility in March.
The deficit figures for the last four months have exceeded the OBR’s expectations.
The Bank of England holds several hundreds of billions of pounds worth of government debt. Excluding the BoE, the debt as a percentage of the economy has increased to 92%, setting another record, up from 91.6% in July.
