London (Parliament News) – Britain’s debt burden hit its most elevated level since 1961 in May placing it within a hair’s breadth of the scope of the entire economy.
Why Has UK Debt Reached Its Highest Since 1961?
The UK national debt increased to £2.7 trillion last month, the Office for National Statistics (ONS) stated, as the Government borrowed an additional £15bn in May. It highlights the challenge the next government will encounter as Rishi Sunak struggles to bring borrowing under management ahead of the general election next month.
Why Did UK Borrowing Increase in May 2023?
Borrowing enhanced compared with the same month a year ago as a peak in tax receipts was outstripped by a more vertical increase in benefit payments. Although backing for energy bills was down, there was also a £2.2bn growth in spending on benefits, which the ONS stated was largely caused by the spring growth in line with inflation. Britain now expends just over £25bn per month on welfare.
Taxes obtained £76.8bn for the central government, up by £1bn on the year, despite the two cuts to the headline pace of employees’ National Insurance. Income tax, VAT and corporation tax all raked in additional cash for the Exchequer.
How Will the UK Manage Debt Burden Amid High Spending?
However, central government spending rose by £2.8bn to £91.6bn for the month. Meanwhile, the expense of servicing the government deficit totalled £8bn. The next government confronts tough choices on taxes and spending as the finances are already packed to the borrowing targets set by Jeremy Hunt, the Chancellor. The significance of prudent fiscal management has been brought into strong focus by events in France. Financial markets are in upheaval amid concerns over Emmanuel Macron’s debt binge and fears that Marine Le Pen’s low-tax, high-spending party, National Rally, will thrive at the polls.
What Are the Implications of UK’s Record Debt?
Thomas Pugh, economist at RSM UK, expressed Britain’s sustained borrowing means that the next government will be under stress to raise more taxes if it wants to evade spending cuts.
He stated: “Given that the current tax and spending plans look extremely difficult to fulfil, the new government is going to have to grow more in taxes or borrow more. Simply keeping non-protected unit budgets stable in real terms will count an extra £20bn to government spending.
“With both main parties having ruled out tax increases to the three main revenue raisers, income tax, National Insurance and VAT, and including signed up to similar fiscal rules, the next administration has a very tough balancing act to perform to bypass another dose of austerity for already stretched government departments.”
A Labour spokesman stated: “Rishi Sunak pledged to cut debt – but on his watch, the national debt has achieved an eye-watering 63-year high. “Labour will present tough new fiscal rules and never play fast and lax with the economy. The choice on July 4 is clear: peace with a changed Labour Party or five more years of confusion with the Conservatives that will mean higher mortgages.”