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All the zeros: five-fold government borrowing expectations

The government could end up borrowing five times as much as it expected on Budget day.

In the Budget on 11 March, the Office for Budget Responsibility (OBR) estimated that in 2020/21, the government would have to borrow about £55bn to make up the difference between what it spent and what would be raised in taxes and other revenue.

A little over one month later, the OBR issued another, vastly different set of numbers, quoting potential borrowing of £273bn or 14% of GDP. This time the OBR was at pains to emphasise that its figures were not a formal forecast but rather “a scenario … based on the illustrative assumption that people’s movements (and thus economic activity) would be heavily restricted for three months and would get back to normal over the subsequent three months”. The second part of the OBR’s scenario of a V-shaped recovery – a sharp fall followed by an even sharper bounce back – was met with some scepticism from other forecasters. Other letters of the alphabet common to economists have been suggested:

  • U-shape – gently picking up before rising sharply;

  • W-shape – a partial rise followed by another dip from a second wave of infections before a final sharp recovery; and

  • L-shape – the economy stops falling, but then flatlines at its new low level.

Whichever proves correct – and none may do so – one near certainty is that in a year’s time the government’s total debt will be close to equaling the size of the UK economy. The corollary is that the Chancellor is going to be in no position to make tax cuts. It is quite conceivable that the Conservative’s manifesto pledge not to increase the rates of income tax, VAT and national insurance contributions (NICs) will have to be dropped.

Rishi Sunak hinted as much in terms of NICs when he launched the Self-employed Income Support Scheme in late March. He said, “I must be honest and point out that in devising this scheme – in response to many calls for support – it is now much harder to justify the inconsistent contributions between people of different employment statuses. If we all want to benefit equally from state support, we must all pay in equally in future.”


Ancojada Limited trading as Prosperitas Consult is not authorised or regulated to provide financial advice.

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