Who is the UK government borrowing money from? Debt and deficit explained by the drop in borrowing in May
Earlier this week, it was revealed that government borrowing had declined in May as the lifting of foreclosure restrictions boosted Britain’s economic recovery and led to higher tax revenues, official figures show.
The Office for National Statistics (ONS) said government borrowing stood at Â£ 24.3 billion in May, up from Â£ 43.8 billion a year earlier at the height of the pandemic.
But where is the UK borrowing this money from?
How does the government borrow money?
The government borrows money by selling bonds.
A bond is an instrument of debt from the seller to the buyer. By selling a bond, the government promises to pay the buyer on a certain date.
In addition to repaying, the government pays interest to the buyer of the bonds.
Typically, buyers of bonds are financial institutions, such as banks, insurance companies, investment funds, and pension funds.
The UK has always been a safe bet for bond buyers, which usually means there is a guaranteed return.
When should the money be refunded?
Some may be payable in just one month, while others may be payable in 30 years.
What is the difference between deficit and debt?
The deficit occurs when the government spends more than it receives on taxes and other revenue that it borrows to cover the difference.
This borrowing is called “net public sector borrowing”, but is often referred to as a deficit.
Debt is the amount the UK has borrowed over the years. UK debt increases when there is a deficit.
What is the UK deficit and debt?
The UK’s current deficit, according to the Financial Times, is expected to reach 18% of UK national income as a result of Sunak’s coronavirus package.
At the end of May 2020, the UK debt stood at Â£ 1,950.1 billion, according to the ONS.
Can the Scottish government borrow money?
In accordance with the Scottish Laws of 2012 and 2016, the Scottish Government has the authority to borrow up to Â£ 3bn, with an annual limit of Â£ 450m.
Under specific circumstances, Scotland can borrow resources up to Â£ 1.75bn, with an annual limit of Â£ 600m.