Where is the government borrowing billions from?
The UK government has borrowed record amounts to pay for measures designed to limit the impact of the coronavirus.
Initiatives such as the leave plan are expensive and government revenues are falling because lower wages and expenses mean people pay less taxes.
How much has the government borrowed?
The latest data shows that the UK government borrowed £ 20.5 billion in August. Despite being £ 5.5bn lower than in the same month last year, it was still the second highest borrowing in August since monthly records began in 1993.
In the previous fiscal year, the government had borrowed £ 325.1 billion, the highest level in any fiscal year since the records began in 1947.
The amount the government borrows to make up the difference between what it spends and what it collects is called “net public sector borrowing”.
It is often called “the deficit”.
Why is the government borrowing money?
The government borrows because it spends more than it obtains income.
Most of its income comes from taxes – for example, the income tax on your paycheck or the VAT you pay on certain goods.
In theory, he could cover all of his expenses through taxes – and that has happened in some years.
But governments have not always been willing to raise taxes enough to cover their expenses. Partly for political reasons – it would be unpopular with voters.
There are also other reasons not to raise taxes. If higher taxes leave people with less money to spend, it can hurt economic growth and jobs.
How does the government borrow money?
The government borrows money by selling bonds.
A bond is a promise to make payments to the person who holds it on certain dates. There is a large payment on the final date – in fact, the repayment.
Interest is also paid to whoever holds the bond in the interim. It is therefore essentially a paying “recognition of debt”.
The buyers of these bonds, or “gilts”, are primarily financial institutions, such as pension funds, investment funds, banks and insurance companies.
Private savers also buy them.
Some also end up being bought out by the Bank of England as part of its current attempts to boost spending and investment in the economy.
As part of the policy – known as “quantitative easing” – the Bank has so far bought £ 875 billion in government bonds.
Government bonds attract investors because they are seen as essentially safe – with little risk that the money will not get paid.
You won’t lose your money and you know exactly when and how much the payments will be.
When should it be reimbursed?
It varies a lot.
Some government loans have to be repaid within a month, but some loans can last up to 30 years.
The minimum repayment period is one day only, while some bonds have been issued for 55 years.
There used to be government debts that never had to be repaid, sometimes called perpetual bonds. But the government chose to reimburse the last of them in 2015.
What is the difference between the public deficit and the public debt?
The deficit is the amount by which the government’s income is less than what it spends each year.
It bridges most of this gap by borrowing, or sometimes by selling assets such as real estate.
The years when a government spends less than its revenues, we talk about a surplus.
The deficit should not be confused with the debt, although the two are linked.
Debt is the total amount of money owed by the government that has accumulated over the years. It is therefore a much larger sum.
Debt increases when there is a deficit and decreases in years when there is a surplus.
In August 2021, it was £ 2.2 trillion. This figure almost exceeds the size of the UK economy, with debt reaching 97.6% of Gross Domestic Product (GDP).
Such high debt levels had not been seen since the early 1960s, when the UK was paying off WWII debts.
The government pays off debt as it matures, but usually has to borrow new money – and take on more debt – to do so.