Today’s public finances data showed the UK government borrowed £21.5bn in October, pushing the total sum borrowed this fiscal year to well in excess of £220bn and on course for a total annual spend of over £320bn, after the chancellor extended the furlough scheme until the end of the fiscal year.
While it is entirely understandable for there to be a debate about these unprecedented levels of public borrowing, one has to question whether now is the right time to do it, given that we haven’t as yet defeated the virus, or even got a vaccine programme in place yet. It’s hard to imagine that there would have been similar conversations being had in 1940, when the country was one year into the second world war, yet suddenly here we are fretting about the costs of an invisible pandemic that has the potential to wreak economic havoc for some time to come.
There will be a time to worry about how all of these emergency measures will eventually be paid for, however one has to question whether now, when businesses are having to deal with so much uncertainty, is that time. Talking about balancing the books now merely sows even more uncertainty among businesses as well as households about the government’s willingness to support the economy, and seems somewhat premature when the economy is still in a state of lockdown. It is much more important to support the long-term viability of the economy, and protect livelihoods in the short term, and worry about the longer term once the pandemic and its effects are largely in the rear-view mirror.
It’s not as if borrowing costs are high, with bond markets fairly sanguine about the levels of borrowing taking place not only here, but all over the world. Furthermore it’s not as if we are alone in the problems facing the UK economy. Every other country in the world is facing the same seismic issues, which means that if the government is sensible the sums being spent can be paid back over decades in the same way the money spent in World War 2 was repaid. This pandemic should be viewed through a similar lens, with the money repaid gradually over decades.
The latest UK retail sales numbers for October also showed that the UK consumer decided to get in some early Christmas shopping before the 5 November lockdown kicked in, perhaps over concerns as to whether there would be time to do it in December. While these October numbers are better than expected, coming in at 1.2%, it only means that the spending has been brought forward from November, and perhaps December, assuming the economy is allowed to unlock on 2 December, with concerns growing that any unlocking could well be minimal in order to avoid a potential pre-Christmas spike in infections. The pound exhibited little in the way of any reaction to the latest set of numbers.