What would you do with 2 trillion pounds? For reference, that is 2 followed by 9 zeroes - most of us would never even need to write that number, forget spending it. But I know what the UK Government would do: it would pay off the insane levels of debt that we have reached. That's right, the UK's national debt has reached a record £2,600,000,000. You may be asking, where did all this debt come from, and what has the Government been spending so much on? The answer is, unsurprisingly, coronavirus aid and recovery schemes. Remember earlier this year, when the Chancellor of the Exchequer, Rishi Sunak, started doling out billions of pounds in the form of aid schemes, such as business loans and the furlough scheme and more recently, the Eat Out to Help Out scheme. With this much money at stake, what is the best move now, and what does the debt mean for you, the workers?
Well, firstly, interest levels are at a record low at a base rate (set by the Bank of England) of 0.1%. When the Government borrows money, they borrow it from private funds in the form of bonds, or 'gilts'. These are effectively a promise saying, 'We will pay back this money by the expiry date'. The expiry dates for these bonds range from just one day to, in some cases, 50 years. But the bonds can be sold, and the Government will pay interest to whoever owns the bond at the time. No matter who owns the bond, the Government has to pay back the money by the expiry date, even if they have to borrow new money in order to do so. The incredibly low interest levels mean that if they do continue to borrow new money, it should not be dangerous - they do not have to pay back as much as they would normally. And they will need to borrow more money: with fewer people working and earning money, the tax revenue has plummeted.
Secondly, debt levels have crossed 100% of national GDP for the first time since World War 2. This means that the debt that we have accumulated is more than all the money that is generated throughout the UK in one year, and may cause some instability. The exact effects of this are debated since when Japan's debt-to-GDP ratio went to 170%, they experienced the complete opposite of what was expected - deflation and close-to-0% interest rates. But the short story is that having a high debt-to-GDP ratio will mean the debt will take longer to pay off, potentially leading to more borrowing in the future.
But more importantly, what does all of this mean for you? It means that in the near future, financial support for the workers will be less readily available and tax rates may come up in order to increase Government revenue in an attempt to reduce the amount of debt we have. So there may be financial hardships ahead for all of us. But that is only one road. If the interest on the loans is smaller than the national increase in GDP each year, then the debt can be paid off without any extra money being needed, since it will always be a smaller and smaller part of the GDP. This scenario can only happen if coronavirus is dealt with within the next year, and the economy gets rebooted, we might not be affected as badly as it may seem. In this situation, taxes may not need to be increased that much. In any case, politicians do not like increasing taxes - it does not appease voters.
In conclusion, coronavirus has caused many problems for the UK government - unemployment, homelessness, but the biggest of all, economic problems. With a national debt of over £2 trillion and the highest debt-to-GDP ratio since the last major war, the outlook does not look good. Despite this, the situation is not as bad as it seems. The national debt looks big but is nowhere near the levels we hit after WW1 and 2, or even older wars. The working class will be hit worst, with next to none financial support being available for them in the near future, but if a vaccine is developed and produced quickly (blog on this coming next week), then we should be able to recover relatively quickly - the recent statistics for retail sales show that we are already recovering. Hopefully, we can make it out of this safely and securely.
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See you next week.
PS. Thank you to everyone who has donated for my cause. I have now finished my 5 weeks of voluntary work. I really appreciate all of your support, and just want that I am so happy that I can support the NHS and other emergency workers by making sure they receive the recognition that they should have, especially in this troubling time.