ICAEW chart of the week: UK government borrowing

While government borrowing requirements have almost halved from its peak in the last financial year, it is still higher than the financial crisis a decade ago.

UK government borrowing chart

2007-08: Refinancing £29bn + New gilts issued £29bn
2008-09: £18bn + £126bn
2009-10: £16bn + £211bn
2010-11: £39bn + £127bn
2011-12: £49bn + £130bn
2012-13: £53bn + £112bn
2013-14: £51bn + £102bn
2014-15: £64bn + £62bn
2015-16: £70bn + £58nm
2016-17: £70bn + £78bn
2017-18: £79bn + £36bn
2018-19: £67bn + £31bn
2019-20: £99bn + £39bn
2020-21: £98bn + £388bn
2021-22: £79bn + £174bn (current year forecast)

Our chart this week is on the topic of government borrowing, which continues at an astonishing pace compared with pre-pandemic times. The UK Debt Management Office has been tasked with raising £253bn from the sale of government securities, comprising £174bn in new finance and £79bn to cover the repayment of existing debts as they fall due. That’s an average of £21bn a month, more than twice the £9.4bn raised in IPOs on the London Stock Exchange in the whole of 2020. 

Admittedly, this is a slower pace than the even more astonishing fundraising in 2020-21 that saw £486bn in gilts issued (almost half a trillion pounds), with £98bn raised to repay existing debts and £388bn used to cover the costs of the pandemic and the shortfall in tax receipts it caused. 

Despite that, the £253bn needed from the sale of gilts this year is still more than was raised in the 2009-10 financial year during the depths of the financial crisis, the previous peacetime peak. This partly reflects a higher refinancing requirement than a decade ago, one of the legacies of the financial crisis. The legacy of the pandemic will be even higher refinancing requirements into the future, keeping the debt markets busy for decades to come. 

The chart does not provide the full story of the UK’s public debt raising, as the Bank of England purchased £450bn of fixed-interest gilts in the market over the last couple of years as part of its quantitative easing operations, in effect swapping the fixed rates of interest payable on the government bonds concerned for the variable rate that is payable on central bank deposits. This has arguably helped the gilt market finance the purchase of such large amounts of government debt and helped keep the cost of government borrowing at extremely low levels but at the cost of significantly increasing the exposure of the public finances to changes in interest rates.

While the government’s financing requirements should be lower in the next few years as the economy recovers, substantial sums will still need to be raised, potentially in much less favourable market conditions. Rising inflation, higher interest rates, and potentially the unwinding of QE, would all combine to increase the cost of borrowing substantially. The days of issuing 30-year gilts at yields of less than 1% may not be with us for much longer.

For more information about the UK’s public debt portfolio, visit the Debt Management Office.

Government gilt sales in 2007-08: £29bn in new gilts + £29 for refinancing; 2008-09: £126bn + £18bn; 2009-10: £211bn + £16bn; 2010-11: £127bn + £39bn; 2011-12: £130bn + £49bn; 2012-13: £112bn + £53bn; 2013-14: £102bn + £51bn; 2014-15: £62bn + £64bn; 2015-16: £58bn + £70bn; 2016-17: £78bn + £70bn; 2017-18: £36bn + £79bn; 2018-19: £31bn + £67bn; 2019-20: £39bn + £99bn; 2020-21: £388bn + £98bn; 2021-22: £174bn (forecast) + £79bn.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK gilt issues

1 May 2020: The unsung heroes at the Debt Management Office (DMO) have swung into action as the UK Government has started to burn through cash at an astonishing rate, as illustrated by the #icaewchartoftheweek.

Chart. Cash raised 2019-20: £10bn, £10bn, £10bn, £13bn, £8bn, £12bn, £12bn, £12bn, £10bn, £13bn, £12bn, £15bn. Cash raised 2020-21: April £58bn.

The DMO, the low-profile unit within HM Treasury responsible for the national debt, raised an astonishing £58bn from selling gilt-edged government securities in April, compared with an average of £11bn obtained each month in the financial year to March. The size and frequency of gilt auctions went from an average of £2.6bn from one auction a week in 2019-20 to £3.2bn from four auctions a week in April.

The scale of the challenge became apparent in March as the Government announced a series of eye-watering fiscal interventions, with the DMO going overdrawn by £18.5bn to keep the Government supplied with cash in advance of ramping up gilt auctions in April.

Fortunately, the DMO is able to finance the Government at ultra-low rates of interest at the moment, with auctions oversubscribed and yields on 10-year gilts at just over 0.3% during the course of April. If maintained, the incremental cost of the additional £384bn in public sector net debt in 2020-21 set out by the Office for Budget Responsibility in its coronavirus reference scenario would be less than £2bn a year.

A legacy of debt for future generations to deal with, but – at least for now – a relatively cheap burden to service.

This chart of the week was originally published by ICAEW.