Tremors of the global pandemic on the UK economy starts to feel and this, inevitably, add another burden to the tax payers as well as businesses which were dogged by uncertainties and costs incurred by additional paper work due to the Brexit.
The latest sign is the huge jump in government’s borrowings; latest provisional figures by the government demonstrate a massive leap in borrowing to £303.1bn for the financial year ending March 2021, £246.1bn more than the previous financial year. This is the highest public sector borrowing in any financial year since records began in March 1947.
As a ratio of GDP, public sector borrowing was near the highest in the financial year 2021 at 14.5%. The highest was just following the World War II in the financial year to March 1946, when the ratio reached 15.2%. Public sector net borrowing was £24.3bn less than the £327.4bn anticipated in the latest official forecasts published by the Office for Budget Responsibility (OBR).
On balance?
Most of the spending was declared for by central government bodies and a great proportion of it was to assist businesses and individuals, reaching £941.7bn in day-to-day activities, a massive increase on the previous year’s £203.2bn. The 2021 figure also included £78.2bn for the Coronavirus job support programme.
It is obvious that successive regimes of strict lockdowns had adversely affected the tax revenues of the government and as a result, there is a marked decline in tax receipts from Value Added Tax as well as revenue from business rates and fuel duty.
There was a substantial decline, with tax receipts estimated at around £523.6bn in the financial year March 2021, £34.2bn lower than the previous financial year.
Effects of the public borrowings
Noteworthy is the impact of the public debt on the economy may, more or less, dependent on the sources of borrowings; for instance,
If the government opted to obtain loans from banks (say purchase of government bonds by commercial banks), that leads to an increase in money supply. As this will put a great pressure on the price level, such measures, needless to say, would be inflationary.
This does not necessarily meant that government borrowings or public debt are always inflationary and if the government would use the borrowings to raise income, reduce employment and output, the inflationary effect will be minimised to a greater extent. However, given the extra ordinary circumstances that the UK finds itself, particularly, following the Brexit, inflationary effects on the economy is unavoidable.
The impact on the economy at large depends on Chancellor of the Exchequer Rishi Sunak decision on the sources of borrowings and how the thus raised money be spent on.
