A top policymaker at the Bank of England (BOE)has backed the chancellor’s concerns over Britain’s growing debt pile, saying state support for the economy is not a “free lunch.”
In an online webinar on Tuesday, Ben Broadbent said: “Spending by today’s consumers has in part been sustained and funded by tomorrow’s taxpayers.
“This isn’t a free lunch – higher government debt has to be paid for eventually.”
Broadbent is deputy governor of the BOE and sits on the central bank’s Monetary Policy Committee. He made the comments about government debt in a presentation on Tuesday about consumer spending during the COVID-19 pandemic. Retail spending has remained unusually buoyant despite collapsing GDP.
“The decline in aggregate consumer spending would almost certainly have been more protracted and more widespread – affecting not just activities that involve infection risk but those that do not – but for the furlough schemes,” Broadbent said. “These have helped shield household incomes from the big drop in national income last year.”
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The government introduced the furlough scheme last March, promising to pay up to 80% of the wages of mothballed workers. The scheme was originally only meant to last for a few months but is now set to run for over a year, ending in April 2021.
Repeated extensions have meant ballooning costs for the Treasury. The government has so far spent £46bn ($62.5bn) on people’s wages, one of the biggest chunks of direct spending during the pandemic. The cost is expected to rise again substantially due to the third lockdown.
Furlough has been funded by ultra-low interest rates that have allowed the government to borrow cheaply. However, the mounting debt pile has left Britain unusually vulnerable to changes in interest rates. Chancellor Rishi Sunak has signalled his growing concern about the mounting debt pile in recent months.
Broadbent said the furlough scheme had shielded consumers “from the huge drop in national income” and helped to smooth out the impact of COVID-19 on incomes and spending.
“This has been done only at the expense of a material rise in public-sector debt, something that will have to be paid for over time,” he said.
While Broadbent’s speech was not focused on the cost of the furlough scheme, his comments will give succour to the chancellor. Sunak has resisted calls to introduce extra support for the economy in recent weeks, insisting that existing measures are enough.
“Now, it is time for responsible management of our economy, taking the difficult but right long-term decisions for our country,” Sunak said in a speech in parliament on Monday.
Economists fear the renewed lockdown and associated spending could push the UK’s public debt close to half a trillion pounds this year.
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