On a brighter note, with GDP being revised up, public sector net debt is now considered to be under 100% of GDP – sitting at a less than comfortable 99.5%. Yet the increase in borrowing is set to continue apace, after the Chancellor extended furlough and loan schemes to the end of April 2021. The Government can therefore brace itself for a fresh round of unflattering ‘debt is now larger than the whole economy’ headlines when the 100% point is soon breached again.
After another £35.5 billion Sunak splurge in June, the UK’s debt has – not unexpectedly – finally reached the same size as the UK’s whole economy, at 99.6% of GDP. The highest debt to GDP ratio since 1961…
The UK’s debt now stands at £1.98 trillion, after figures show borrowing in the first quarter of the financial year was more than double the £55.4 billion seen in the whole of the previous year. The only tiny silver lining is that borrowing in June was lower than expected by most economists, and £10 billion less than May…
Many households have been feeling the pinch during the coronavirus pandemic, with millions of people currently on furlough, unemployed and business owners facing uncertainty on when they can resume their business.
However, to minimise the financial shortfalls, the UK government has stepped in to offer payment holidays across a range of financial products, helping households to save and defer payments until later dates.
Being aware of these options can help the average Briton hold onto thousands of pounds in the short-term and ease any financial pressures they may be experiencing.
One of the first actions that the UK government issued was a payment holiday of up to 3 months on mortgage repayments.
The average UK household spends £671 on their mortgage each month and over the three-month period, could provide a saving of around £2,100 to the average family.
To be eligible, you will need to demonstrate a loss of income and difficulty in repaying your mortgage as a result of the coronavirus; and that you are not applying as part of a long-term financial issue. For an individual that has been missing repayments and over-using payment holidays in the last few years, they may fall under a stricter category.
The UK has offered VAT and self-assessment tax delays for individuals and businesses who are looking to manage their cash flow.
For many self-employed and small businesses, the ability to defer tax payments will offer a lot of breathing space short-term.
However, claimants should ensure that they have sufficient funds available when this payment becomes due, because it will also include the returns for that period and may result in paying double your normal rates.
For those using current accounts and business bank accounts, customers can use their overdraft during COVID-19 without incurring any fees.
This is currently limited to just £500, however, different terms may apply depending on the bank provider, your previous payment history and company turnover.
If you do not have an overdraft, you may request one from your bank and this may be subject to status.
If you are looking to open a business bank account during the pandemic, you can look at which companies do not offer any upfront or monthly fees, or give introductory offers and come with an overdraft facility.
Credit Card Debts
The FCA announced that all banks and credit card providers can offer customers the chance to freeze credit card payments for up to 3 months.
Customer that opt for this scheme will not see any impact to their credit score or incur any extra fees, but for many will benefit from the important breathing space.
This decision includes any credit cards and store cards; and banks have been told that they cannot suspend cards during this period either.
Whilst the eligibility criteria will be treated on a case-by-case basis by each bank or provider, this should not be seen as a long term solution and there may not be leniency on customers that regularly default on credit card payments.
Part of the FCA announcement made on 2nd April confirmed that anyone with outstanding loans may be eligible for a three-month interest repayment, including personal loans, guarantor loans and business loans.
It was later confirmed on 17th April that customers can take a one-month payment holiday for peer to peer loans, car finance, short term loans and payday loans.
Customers will not have any impact on their credit score or be charged anything extra for this privilege, but they will still be liable for full repayments and be required to see through the full terms of their loans.
Every customer still has to apply for a payment holiday and those who are looking to avoid payment for longer periods, will be assessed very closely. For many financial institutions, they have ceased lending in recent weeks over uncertainty surrounding customer income and affordability, but those looking for an opportunity to compare loans and take out money quickly with the aim of taking payment holidays will not be eligible.
No Fear of Repossession
Finance providers and card issuers have confirmed that customers will not be at risk of repossession of any properties, vehicles or assets during the coronavirus pandemic. This will give further peace of mind to those with debt on their shoulders and payment holidays should be explored to help reduce any potential debt problems.
Rishi Sunak might have wished he maintained the Today Programme boycott this morning as Martha Kearney asked a line of questions from the right, accusing the Chancellor of being more like Gordon Brown than Margaret Thatcher with his high spending, high borrowing and high taxing. Ooof…
Rishi defended the new borrowing and spending splurge on the grounds that the cost of borrowing is now lower than when the debt was less because interest rates are lower. The graph above is of the nominal forward curve derived from the government gilt market – which is how the government borrows. It does indeed look extremely cheap to borrow. The two curves show how the yield curve moved yesterday, some 50 basis points at the long end or half-a-percent in a day following the base rate cut. In the event of an inflationary economic shock, borrowing costs could very easily go the other way, much faster and much further. The government has to regularly refinance tranches of the £2 trillion national debt.
To argue that because interest rates are now cheap it is safe to borrow more than ever before, with a rising debt to GDP ratio unprecedented outside wartime, is reckless. To argue as Rishi now does that he can confidently forecast rates 30 years from now, when only 5 years ago Rishi himself was confidently forecasting that the government would now be paying down the debt, seems panglossian.
Liz Truss has kindly reminded Guido that the Treasury has other problems besides Brexit. The taxpayer is funding debt interest of over £1 billion-a-week, which is more than the budget for Scotland and Wales combined. Remember that when hear Scottish and Welsh MPs demanding more taxpayer spending. When John McDonnell proposes to borrow £500 billion, remember who will pay it back. You, the taxpayer…
The Tories are claiming it is some sort of achievement that public sector net borrowing was £28.3 billion between April and August, down £0.2 billion on 2016. Yes, big congratulations to Philip Hammond for getting government overspending down to just £10 million or so an hour.