Where does the Government borrow money from?
RISHI Sunak and the UK government are borrowing record-breaking amounts to pay for measures introduced to limit the impact of coronavirus.
But where does the Government borrow money from?
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Where does the Government borrow money from?
The Government borrows money by selling bonds, explains the .
Public finances have been battered by the coronavirus pandemic since it gripped the UK from early 2020.
The Government has been handing out huge sums of money to businesses and employees to prevent millions of people winding up unemployed.
The cost of the Chancellor's furlough scheme - which pays furloughed staff 80 per cent of their wages up to £2,500 a month - is £14billion a month, according to the Office for Budget Responsibility.
So the Government must borrow money as it spends more than it gets in income - mainly from income tax or VAT.
And this is where bonds come into play.
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 effect, the repayment.
Interest is also paid to whoever owns the bond in the meantime. So it's basically an interest-paying 'IOU'.
The buyers of these bonds, or "gilts", are mainly financial institutions, like pension funds, investment funds, banks and insurance companies.
The Bank of England has snapped up £875billion of government bonds to help boost spending and investment in the economy.
Repayment terms can be as fast as one day - or stretch over decades.
What is government debt?
When the Government spends more than it receives in taxes and other revenues, it has to borrow.
This is sometimes referred to as the Government’s budget deficit.
The Government will need to borrow more during the coronavirus pandemic, says the Commons Library.
Over 85% of the Government’s total debt has been raised by selling gilts and bills, mainly to financial institutions.
Gilts and bills are ways of loaning 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 bills finances the Government’s borrowing.
A buyer of a gilt lends the Government money for a specified length of time.
This is known as the gilt’s maturity. In return, the holder of the gilt receives an interest payment.
Insurance companies and pension funds are the biggest holders of gilts and bills with around 32% of the total value.
A further 28% are held overseas.
How much did the Government borrow in 2020?
The Government borrowed a staggering £400billion over 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 has... struggled to generate tax.
"That has opened a vast hole in the public finances, with this year’s multibillion-pound deficit adding to our already huge national debt."
Business Secretary Kwasi Kwarteng said Mr Sunak had acknowledged the country could not "go on spending money forever".
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"For now, what we have to do is support businesses, individuals, families, through what has been an extremely difficult time," he told BBC Breakfast.
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"We have got another three years to run in the parliament and the Chancellor will be looking to reduce the deficit.
"For now, I think the real emphasis is on trying to provide critical support."