Government debt could reach 105% due to government spending to support the UK through the coronavirus pandemic, according to the Treasury Department’s senior official.
Sir Tom Scholar told MPs his team was still awaiting official forecasts from the Office for Budget Responsibility (OBR) but the UK economy was likely to experience its worst annual decline in three centuries.
The ministers have taken out large loans to support the vacation program. They have taken on 80% of workers’ wages up to a maximum of £ 2,500 a month when they were unable to work and made loans to companies affected by restrictions aimed at slowing the spread of Covid. 19th
A total of 9.6 million jobs have been filled, according to HM Revenue and Customs, and claims of £ 41.4 billion had been made by October 18.
However, the Treasury Department’s permanent secretary said that despite the high cost involved, the government would provide short-term support to the economy to avoid major fallout supported by the International Monetary Fund (IMF).
Sir Tom told the Commons Public Accounts Committee that the OBR is “still finalizing” its projections, which will be released along with next week’s spending review, but “are likely to have very serious economic implications”.
He said: “In its forecast a week ago, the Bank of England announced that the economy would contract 11% year over year in 2020, the largest annual decline in 300 years. It is very serious. “
The official said the OBR’s upgrade in the summer of its borrowing and debt projections was a “very significant blow to the budgetary position”.
Sir Tom said, “We’ll have the exact numbers next week, but in their monthly estimate in August, the OBR projected borrowing of around £ 370 billion, or 19% of GDP – an increase of 2.5% of GDP this year (in March) and a debt of not around 75%, but rather over 100%, maybe 105%. “
The changed circumstances forced the Treasury Department to cancel plans for a multi-year budget review for most government departments. Chancellor Rishi Sunak was only due to come up with spending proposals in 2021-22 when he appears in the House of Commons next week.
However, Sir Tom, a former Downing Street advisor, said the IMF intended to continue providing assistance now in order to avoid a major economic shock later.
“The approach of this government, and in my opinion almost every other government in the developed world, has been to provide full, generous, short-term assistance to minimize the long-term consequences of short-term disruption,” he added.
“The IMF has said … there will be a time for fiscal consolidation in every country, but that time has not yet come – the priority for now is to support the economy in the short term and, in fact, this is the best way to help in the medium and long term to reach. Concept of fiscal sustainability. “
Urged by committee chair Meg Hillier as to whether a rise in interest rates was likely to have a “catastrophic” impact on public spending, Sir Tom admitted that it was likely to have an impact, given Britain’s indebtedness.
He told the committee that the OBR had identified a potential rate hike, currently at an all-time low of 0.1%, as “one of the major risks to public finances”.
“A sustained rise in interest rates would increase the debt interest burden – the larger the debt, the larger a given change in interest rates will be on the debt interest,” Sir Tom continued.
“Debt interest is counted as government spending in national accounts. The more you spend on debt, the less you have to spend on other things.”