The Office for National Statistics has just issued new public debt statistics. The headlines will be all about the issues that they highlight in their own report:
Debt (public sector net debt excluding public sector banks, PSND ex) at the end of May 2020 was 100.9% of gross domestic product (GDP), the first time that debt as a percentage of GDP has exceeded 100% since the financial year ending March 1963.
Debt (PSND ex) at the end of May 2020 was £1,950.1 billion, an increase of £173.2 billion (or 20.5 percentage points) compared with May 2019, the largest year-on-year increase in debt as a percentage of GDP on record (monthly records began in March 1993).
Central government net cash requirement (excluding UK Asset Resolution Ltd, Network Rail and the COVID Corporate Financing Facility) in May 2020 was £62.7 billion, £46.1 billion more than in May 2019, the highest cash requirement in any May on record (records began in 1984).
So, the official story is debt is skyrocketing.
But before anyone panics hidden down in the depths of the report is this note:
The Bank of England's contribution to debt
The Bank of England's contribution to debt is largely a result of its quantitative easing activities via the Bank of England Asset Purchase Facility Fund and Term Funding Schemes.
Bank of England Asset Purchase Facility Fund
In March 2020, the Bank of England announced the expansion of its Asset Purchase Facility Fund (APF) by £200 billion to a total of £645 billion in total, made up of £190 billion in gilts and £10 billion in corporate bonds.
At the end of May 2020, the gilt holdings of the APF have increased by £46.7 billion (at nominal value) compared with the end of April 2020, to £475.1 billion in total. This increase is of a similar order of magnitude to the new issuance by the DMO in May 2020, which means that gilt holdings by units other than the APF have changed very little since April 2020.
And just to put that last point in context they note that:
Latest published figures from the Office for Budget Responsibility's (OBR) coronavirus reference scenario suggest that borrowing in the current financial year (April 2020 to March 2021) could be £298.4 billion, around five times the amount borrowed in the latest full financial year (April 2019 to March 2020).
And yesterday I noted that the Bank of England has announced £300 billion of QE now.
So, in summary, it's not just in May that the increase in gilt holdings by the Asset Purchase Facility will mean that government debt ownership by anyone but the government will not change much at all. That will be true for the next year.
So, the question then is, has government debt increased to 100.9% of GDP when the entire increase is owed to the government, as owner of the Bank of England?
No, of course it hasn't. Government debt is effectively unchanged. What has increased is the central bank reserves in the economy. But they make good the shortfall in cash generation that would have otherwise occurred in the private sector. The Office for National Statistics is, yet again, issuing wholly bogus statistics. We might as well begin to call it the Office for Public Misinformation so frequently is it doing this now.
All the talk of debt exceeding 100% of GDP is pure nonsense. The simple fact is that government cannot owe itself money, and it won't all the newly issued so-called debt.
And the QE will not be unwound - because markets will never be able to or want to absorb £735 billion of extra gilts. And if they did, then new gilts should anyway be issued to fund a Green New Deal.
So this morning read all the nonsense that will be said and tell everyone that it is all just that: hysteria to make us feel vulnerable as a precursor for cuts in government spending that will impose real hardship in society that are unnecessary because the total government debt has not changed at all.
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[…] difference is £45.5 billion. Which as I have already noted this morning, was entirely funded by the Bank of […]
This an analysis should be sent to Keir Starmer to ask if he accepts the ONS “spin” or “debt increase” interpretation much like Caroline Lucas wrote to Mark Carney in 2014 asking if the BoE could accept Green Deal style financial instruments for QE purchasing in addition to gilts.
https://www.carolinelucas.com/latest/financial-times-mark-carney-boosts-green-investment-hopes
I am very familiar with that letter from Caroline…. 🙂
Might also be a good idea to send it to that poor Shadow Chancellor woman, who doesn’t seem to have a clue about macroeconomics. Or maybe she does know something, but has no idea how to express it.
An IOU issued to ‘I’ is really an ‘IOI’
So ‘I’ (in this case the government) ends up with both an asset and a liability of exactly the same value.
X – X = 0
… Skyrocketing debt? I think not.
🙂
Listening to Radio Scotland Weekend GMS, Professor Donald MacDonald was interviewed about the current crisis.
He categorically stated that 1) government debt was now 100% of GDP or reaching it and that 2) it was only stoking up problems for our children and grandchildren who will have to pick up the tab in future years.
The presenter, Isobel Fraser, agreed in not so many words. It is frustrating that unless the listener had, at least the slightest knowledge would believe what they heard.
Having just received my copy of The Deficit Myth yesterday and having only started the introduction it makes the blood boil when no alternative analysis is ever given and statements are accepted without question.
I think this is Ronald MacDonald
Candidly, I would not believe a word of the nonsense he talks
He’d be more use flipping burgers
You are right! He is Professor Ronald Macdonald, Research Professor of Macroeconomics and International Finance at the University of Glasgow. And, I’m pleased to say I didn’t!
“In a time of deceit telling the truth is a revolutionary act.” George Orwell
The main media are aiding and abetting the government in its attempt to get people back to work and education.
The BBC tells us, “The UK’s debt is now worth more than its economy after the government borrowed a record amount in May.” it’s true; the government borrowed 55.2 billion in May, what’s not explained is who the government is borrowing from. The largest amount of borrowed money comes from gilts bought by the Bank of England which might be described as boring from oneself.
The lowering of the interest rate to 0.1% gave the green light for the government to borrow through the mechanism of financial repression coercing pension funds, banks, and other domestic institutions to soak up government debt at rock bottom interest rates, the value of the loans will decrease in value even further with money depreciation. This type of borrowing has a long-term detrimental effect on public expenditure. the lowering bank rate signaled another slice of quantitative easing by the Bank of England with a £100 billion purchase of bonds from the banks and financial markets giving the banks and other institutions more liquidity so they can lend more to commerce and industry this favors the rich corporations and financial institutions and is simply an offshoot of the discredited trickle-down economic theory of Reaganomics
The BBC states “The borrowing splurge sent government debt surging to £1.95 trillion, exceeding the size of the economy for the first time in more than 50 years. Chancellor Rishi Sunak said the figures confirmed the severe impact the virus was having on public finances.”
Yet the Office for National Statistics state (latest figures) “The UK’s net worth reached £10.4 trillion in 2018, rising by £297 billion since 2017. This is an average of £156,000 per person in the UK.” (Just think what this country would be like if there was a proper distribution of wealth)
The ONS also informs us “The Gross domestic product of the United Kingdom in 2019 was 2.21 trillion.” I think the BBC is being confused with the amounts of money the government spends on public expenditure, as a proportion of GDP which is the lowest compared to European comparable economies.
Payments on the debt incurred by the government have been spread over a 5 to 10 years plus period; money markets see the UK economy growing by an average of 1.4% in the years 2021/24 in 2019. It grew by 1.2% using the same level of tax revenue pre-neoliberalism would enable us to pay back all debt well within a decade and end austerity and poverty. What’s left out of the balance sheet is government income VAT and other indirect taxation deferred until 31 January 2021 along with loans and extended time to pay schemes and other income will net the government over £600 billion which will be on top of the NI and other taxes received by the Exchequer. The ONS states government income was 45.6 billion in April.
The pro-austerity brigade tells us the ratio of debt to GDP will rise to 97.7%. In1945 the Labour government was faced with a ratio of debt to GDP of over 250% it still managed to bring about the NHS build 1 million homes achieved full employment and much more.