Where does the government borrow money from?

RISHI Sunak and the UK government are borrowing record amounts to pay for measures introduced to limit the impact of the coronavirus.

But where does the government borrow money from?

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Rishi Sunak has the heavy task of cleaning up public finances shaken by the coronavirusCredit: AFP

Where does the government borrow money from?

The government borrows money by selling bonds, says the BBC.

Public finances have been hit by the coronavirus pandemic since it gripped the UK in early 2020.

The government has distributed huge sums of money to businesses and employees to keep millions of people out of work.

The cost of the Chancellor’s Leave Program – which pays staff on leave 80% of their salary up to £ 2,500 per month – is £ 14 billion per month, according to the Office for Budget Responsibility.

So the government has to borrow money because it spends more than it earns in income – mainly income tax or VAT.

And that’s where the links come in.

A bond is a promise to make payments to whoever holds it on certain dates. There is a large payment on the final date – in fact, the repayment.

In the meantime, interest is also paid to whoever holds the bond. It is therefore essentially a paying “recognition of debt”.

The buyers of these bonds, or “gilts”, are primarily financial institutions, such as pension funds, investment funds, banks and insurance companies.

The Bank of England has raised £ 875 billion in government bonds to help boost spending and investment in the economy.

Repayment terms can be as short as a day – or span decades.

What is the public debt?

When the government spends more than it receives on taxes and other revenues, it must borrow.

This is sometimes referred to as the government’s budget deficit.

The government will need to borrow more during the coronavirus pandemic, according to the Common Library.

Over 85% of the government’s total debt has been lifted through the sale of gilts and bonds, mainly to financial institutions.

Gilts and banknotes are ways of lending money to the government.

They are auctioned by the Debt Management Office (DMO).

The DMO is the government’s debt management agency. The sale of gilts and bonds finances the government loan.

The buyer of a gilt lends money to the government for a fixed period of time.

This is called the maturity of the gilding. In return, the holder of the gilt receives interest.

Insurance companies and pension funds are the largest holders of gilts and vouchers with around 32% of the total value.

28% more are held abroad.

How much did the government borrow in 2020?

The government has borrowed £ 400 billion in the past year, eight times more than in 2019.

Economist Liam Halligan wrote in The Sun in February 2021: “The pandemic has caused Britain’s deepest economic downturn in three centuries.

“Our locked-down economy is … struggling to generate taxes.

“It has opened a huge hole in public finances, with this year’s multibillion pound deficit adding to our already huge national debt.”

Business Secretary Kwasi Kwarteng said Mr. Sunak had recognized that the country could not “keep spending money forever.”

“Right now what we need to do is support businesses, individuals, families, through what has been an extremely difficult time,” he told BBC Breakfast.

“We still have three years to run for parliament and the Chancellor will seek to reduce the deficit.

“Right now I think the real goal is to try and provide critical support.”

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