The UK is being paid to borrow just as it borrows record amounts

Sometimes even when you expect something it still creates something of a shockwave. We knew that UK public spending was on speed and that tax receipts were going to be like one of those cartoon characters running off the edge of a cliff. But even so this had an impact.

Borrowing (public sector net borrowing excluding public sector banks, PSNB ex) in April 2020 is estimated to have been £62.1 billion, £51.1 billion more than in April 2019; the highest borrowing in any month on record (records began in January 1993).

Boom Boom Pow as the Black Eyed Peas would say. As we break it down we see it is a central government game as it also is pouring money into local authorities as we noted last time.

In April 2020, central government borrowed £66.2 billion, while local government was in surplus by £7.3 billion. This local government surplus partially reflects the increase in current transfers from central government to fund its COVID-19 measures.

If we look at spending we see this.

In April 2020, central government spent £109.3 billion, an increase of 38.3% on April 2019.

There was an increase of £1.6 billion in social benefits which ordinarily would be a big deal but this time gets swamped as the “other” category rises by £36.1 billion. We can start to break that down.

This month we have recorded the expenditure associated with the Coronavirus Job Retention Scheme (CJRS) for the first time. CJRS is a temporary scheme designed to help employers pay wages and salaries to those employees who would otherwise be made redundant……..In April 2020, central government subsidy expenditure was £16.3 billion, of which £14.0 billion were CJRS payments.

A fair bit of the amount below would have gone on the NHS.

Departmental expenditure on goods and services in April 2020 increased by £7.1 billion compared with April 2019, including a £1.2 billion increase in expenditure on staff costs and a £5.7 billion increase in the purchase of goods and services.

Also I did say they were pouring money into local government.

Central government grants to local authorities in April 2020 increased by £14.2 billion compared with April 2019, mainly to fund additional support because of the COVID-19 pandemic.

The only gain was from lower inflation

Interest payments on the government’s outstanding debt in April 2020 were £5.0 billion, a £1.2 billion decrease compared with April 2019. Changes in debt interest are largely a result of movements in the Retail Prices Index (RPI) to which index-linked bonds are pegged.

Tax Receipts

This is an awkward category as it relies on past patterns and well you can guess the rest. But they have tried to come up with some suggestions.

In April 2020, central government receipts fell by £16.4 billion compared with April 2019 to £45.6 billion, including £29.6 billion in tax revenue.

They have tried to allow for the lower level of activity although sadly the numbers they have used have come from the Office for Budget Responsibility or OBR. For newer readers the first rule of OBR Club is that it is always wrong.

We do get some further clues from the Retail Sales numbers also released earlier.

The volume of retail sales in April 2020 fell by a record 18.1%, following the strong monthly fall of 5.2% in March 2020.

As you can see VAT receipts will be hit as will income tax payments from many shop workers. Also we got evidence that there was a lot of panic buying of food when the pandemic hit.

The fall of 4.1% for food stores was mainly due to a fall back from the strong growth of 10.1% in March 2020. Retailers provided feedback of panic buying in March, which caused a sales spike.

Also I hope that you are all sober when you are reading this.

In April, 13.6% of alcohol and tobacco stores reported having zero turnover, however, the volume of sales for these stores increased by 2.3%; a further rise from the strong growth of 23.9% in March.

As you can imagine a trend we have been noting for some years got another boost.

Online sales as a proportion of all retailing reached a record high of 30.7% in April 2020, exceeding the original record reported last month of 22.4%. All sectors reached their highest-recorded proportions except non-store retailing, which reached record proportions in February and March 2020, both at 83.2%.

As well as being sober I hope you are dressed reading this.

The sharp decline in April 2020 has resulted in the lowest levels seen in the volume of textile, clothing and footwear sales since the beginning of the series, when March 1988 was at a similar level.

Last Month

The uncertainty about the amount of tax receipts is highlighted by what has just happened to the March data.

Borrowing in March 2020 was revised up by £11.7 billion to £14.7 billion, largely due to a reduction in the previous estimate of tax receipts and National Insurance contributions and the recording of expenditure associated with the Coronavirus Job Retention scheme.

The main player here was this.

Additionally, the subsidies paid by central government in March 2020 have been increased by £7.0 billion to reflect the additional CJRS payments not previously recorded.

National Debt

This comes with some caveats but the ONS has tried to allow for an expected lower level of economic activity here so fair play.

The Bank of England’s contribution to debt is largely a result of its quantitative easing activities via the Bank of England Asset Purchase Facility Fund and Term Funding Schemes.

If we were to remove these temporary effects, debt at the end of April 2020 would reduce by £184.5 billion (or 9.6% percentage points of GDP) to £1,703.1 billion (or 88.1% of GDP).

Of course we know about the word “temporary” as regards Bank of England activities! However I have always thought it odd ( and frankly a bad design) where the Term Funding Scheme ended up inflating the national debt. Losses on it should be counted but there is collateral held so any net impact should be far lower than the gross.

The only flaw here is the use of an OBR scenario as I have explained above, but it is a worthy attempt none the less.


I thought I would now spin things around a little because if this was a film there would be no demand for any with titles like “Revenge of the Bond Vigilante’s”. Over the past week or two the UK has in fact increasingly been paid to borrow, so in fact we now inhabit a sort of anti matter driven Bond Vigilante universe. I have been noting for a while that the two-year UK Gilt yield has been on the edge and it has been slip-sliding away this week to -0.07%. It has been joined by the five-year which is now -0.02%.

Now let me shift to the causes of this as at first the Bond Vigilantes will be revving up on the start line.

In April 2020, the Debt Management Office (DMO) issued £51.7 billion in gilts at nominal value, raising £58.5 billion in cash. This represents an unprecedented increase in gilts issuance (at nominal value) compared with March 2020.

But the Bank of England has stepped in with its QE purchases.

At the end of April 2020, the gilt holdings of the APF have increased by £43.7 billion (at nominal value) compared with the end of March 2020,

As you can see this effectively neuters a lot of it and let me bring you right up to date. This week the UK debt management office has been working hard and issued some £16.5 billion of UK Gilts but if it was a race the Bank of England has only been a few paces back as it bought some £13.5 billion. Also the Bank of England has been driving us into negative yields by for the first time buying them as it has done on at least 4 occasions this week.

So we borrow enormously and can do so at record low yields. So for now we are “lucky” according to the definition provided by Napoleon. On the pattern so far we may see our benchmark ten-year yield go negative as well ( currently 0.14%). One consequence of this is I expect cheaper fixed-rate mortgage deals as the five-year yield is my proxy for that and it has gone negative. If the banks are as “resilient” as we keep being told they will be slashing rates. Meanwhile back in the real world we may see some mortgage rates being trimmed.


32 thoughts on “The UK is being paid to borrow just as it borrows record amounts

  1. Shaun,
    I suggest you may be too optimistic on mortgage rates – in the US the larger value mortgages seem to be disappearing ( wolf street blog as source) . I suspect the banks will protect themselves by requiring more equity for any lower rate mortgages even refinanced one’s as a hedge against price falls & to avoid negative equity by borrowers.

    • In London the banks need to ask for closer to 90% deposit to protect themselves.

      Im working on a development at the back of Kings X station, and its close to £2mln for a crappy flat where they’ve not only managed to put the kitchen in the lounge to claim it has an extra bedroom, but they’ve also managed to put a bedroom in the lounge to claim it has an extra bedroom.

      Still when we live in a world where the govt can pay most people (not me) not to work, as people pay them to lend money then it wont be long until that £2mln will be fair value, when its just a few years worth of giro.

      • That’s dreadful! You would need to knock a nought of the end of the price for me! OK it’s London but quality of life has to come into it somewhere and I’m sure I am better off in a place that is a fraction of that value but with four or five times the space and a decent view.

        • They’re building 1000s of these type of flats in the area as Facebook are building a new HQ there, which is next to Youtube, Google and several others. And in recent weeks they stated many staff will be working from home in the future.

          Still i dont know whats more surreal people buying 60m2 flats for £2million in Kings X, or the govt get paid money for their debt so they can pay people to not go to work.

          • I wish they were paying me . I was out of work before this sh!&st*&m,

            I get bu@@er all from HMG for staying at home and job seeking is just painful!

            still there’s worse off than me .


          • Forbin

            Sorry you’re going through all this. Hope things improve for you shortly. Best Wishes.

          • I wish you well too Forbin.
            I’m my wife’s carer, which means she needs care at least 35 hours a week, so I’m still working, yet getting less than £2 an hour, even if you don’t count all my overtime.
            I get £8 a week less than an unemployed person.

          • They are UN AGENDA 21 stack and packs, they are being built all over the country, especially along public transport arterial routes.

  2. The massive borrowings is being done to try and prevent a collapse in the economy, jobs and the housing market, we learnt this today:

    1-Retail sales collapse -18%

    2-Further extension of mortgage holidays to prevent a housing market collapse and repossessions

    3-All options on the table including negative interest rates and Ramsden says that would be complex–boes-ramsden-2125169

    Its been completely ruled out the economy will have a V shaped recovery and if the government had not furloughed its likely imo the country would have been facing a long depression. Moat of this was entirely predictable a month ago despite the Chancellor hoping we would recover quickly.

  3. Hi Shaun

    i realise the boe is now directly monetising gilts ala Zimbabwe style. But is the above actual evidence of it?


    • Hi Anteos

      I would say that they are indirectly monetising Gilts. Once one is issued they do not buy it for a week so there is a gap. For example the first Gilt issuance ( 2% 2023) to approach a 0% yield was bought by them just over a week later. I guess for this we can use the 8 days definition of a week provided by the Beatles. But pure monetisation not yet…

      • Shaun,

        As you note, the national debt, or the UK govt debt, stands at £1.888trn. The £ net financial assets held by the non-govt sector adds up to £1.888trn.

        This is not a coincidence.

        The net financial assets held by the non-govt sector are £ Gilts and £ currency. The non-govt sector holds £80bn of banknotes and coin, £625bn of reserve balances and £1.183trn of Gilts. These are all IOUs written by the government sector and held by somebody in the non-govt sector.

        It is the non-govt sector that ‘finances’ the govt sector’s debt. This has always been the case. A part of the government’s debt has always been monetised – that is, it has been held by the private sector in the form of currency. It is how we have a £ currency to use.

        Yes, the quantity of currency held by the non-govt sector has increased dramatically from 12 years ago. Why is this? It’s because the non-govt sector, banks in particular, wishes to hold more currency (banks hold currency in the form of reserve balances, not so much in paper form). Banks prefer to hold reserves over Gilts, because reserves are immediately acceptable within the payments system (Gilts have to be exchanged for reserves within the payment system) and, being variable rate, are a better fit for banks’ liabilities.

        Is it a problem that, of the IOUs the govt sector has written in favour of the non-govt sector, a third are in the form of reserve balances? I can’t see any problem, Can you?

  4. Shaun, I know I have expressed this opinion before but not really got an answer ( not just from you) In a world of negative interest guilts and negative rates from BoE and importantly the same situation occuring in all currencies ( so no opportunity for currency arbitrage); would ‘more’ negative rates ( ie from -1% to say -5%) have exactly the same effect as taxation , ie destroying currency.
    So in this ‘alice through the looking glass world’ , governments merrily spend what they want and never have to put up taxes because the CBs just increase the ‘negative’ in the interest rates?
    I think this leads to ultimate financial hegmony for governments as they have the ability to invest/spend, but no-one else does as they are starved of liquidity.
    Is this part of the cunning plan? Ultimate feudal power.

    • JimW

      Until rates go negative over -1% no one knows what the implication would be. However taxation goes directly to the exchequer, rates going negative penalizes savers and cash deposits with the caveat they would be no worse off in a deflationary environment.

      I don’t think anyone has a clue at the moment how to salvage the world economy China isn’t giving any GDP forecasts as the coronavirus has knocked the world economy badly and its still playing out.

      • Coronvirus hasn’t destroyed the economy, that was done by left wing/neoliberal technocrats and career politicians, then taken to a whole new level by the Tories.

        But they’ve done far worse than destroying the economy, they’ve turned the UK into a communist dystopian nightmare that not even Orwell could envisage. Thus IMHO “fixing the economy” is the lesser of the plebs problems.

        • Hello Arthur,

          to me it looks more of an absence of political will.

          we had the technocrats take over – unelected .

          the forecasts were for many more infected and many more deaths. this has not played out – feel free to disagree dear reader .

          With no economy there’s no HNS and, ergo , no protection from cv-19 or many other illnesses .

          so first of would actually be a wholesale removal of all statutory restrictions . Leave it to the individual if they wish to isolate or wear face masks ( even if it appears they were mad from a pair of your wife’s knickers – no seriously I’ve seen it !! what protection do they think a wispy sheet of leopard print Lycra will do is beyond me ! )

          well , its front row time . more popcorn is on order !


          • Obviously it all depends on who you asked to give a forecast. Boris took his advice from a physicist with a “the end of the world is nigh” placard slung over him.

            Then Trump has seemingly listened to Boris.

    • my forecast would be that if BIRP hit the High street would be what they wanted. At first .

      but with rates at -2% for all accounts .
      1, run on banks – who would leave their wages in the Bank ?
      2, those that could – debt repayments
      3, run on Savings – accounts emptied
      4, purchase of ANY assets deemed capable of holding some value of any kind, even a Merc – remember Greece?
      5, payments of bills in advance would attract charges – after all if you pay for a years car insurance the company will be getting less money . The charge would be a higher premium for those who don’t pay monthly for example.
      6, I honestly cannot see any credit card offering a negative rate but that might be forced if needed as in if you keep repayments up the principle will be discounted .
      7, purchase of anything other than property will be monthly . TV , Fridge , cars are already but the principle paid will decline whilst the premiums remain the same – with incentives to roll over the deal.

      All of these actually would require you to have a job. or other income such as rents.

      anyone else can think of what next ?? *


      * don’t blame me if HMG copies these ideas – I’m sure someone there reads this blog !!

    • to answer your first question: Any payment from the private sector to the public sector destroys currency (in the form of reserve balances). Any payment from the public sector to the private sector creates currency (reserve balances).

      So, yes, a private sector entity paying more for a Gilt than he would receive back in coupon and principal would lead to currency being destroyed. Negative yields (or positive yields) on private sector bonds held by the private sector have no effect on the supply of currency or bank credit-money. Balances just move from one bank account to another.

      • And right on time here he is Sir Humphry himself! I was just imagining what reply you would make to Forbin’s post when you stood up to the plate and made it yourself! I often wondered whether you worked for the Bank of England or some branch of the Treasury, now my suspicions are almost confirmed!!
        Yes Minister is alive and well in the corridors of Notayesmans Economics!!!!

        I suppose we should consider it some form of compliment that we are being watched and considered for a reply and rebuttal from such a hallowed institution!

    • Hi JimW

      Let me give you an answer and start with the middle of your range at -3%. That would start quite a few bank runs as I believe it would be enough for that. What would we get.
      1. Much higher demand for cash
      2. A rush to precious metals
      3. A rush to Bitcoin and the other coins.
      4. More barter in the economy avoiding cash altogether.

      This would be very unstable with the weakest currency being the one with the banking sector in the most trouble. I would expect moves to protect “The Precious” such as limits on cash payments and perhaps confiscation of gold ( that was mentioned in the comments yesterday). So we would get actual protests and unrest or very Harkonnen.

      Would it be a form of taxation? Yes.

      By the way I like “negative interest guilts” 🙂

  5. I have expressed this opinion on here before so to add to the other predictions, this kind of insanity will only have extremely severe dire economic consequences, the timing may be out but sometime in our lifetimes the central bankers will pull the lever that triggers the trapdoor on all financial assets, securities and derivatives to introduce the next monetary system, then all the “doomsters and permabears will be proved right, if not the whole system will eventually collapse as result of all the debt burden, leverage and fraud accumulated in the system that not even the central banks can paper over, so it is only a matter of timing the eventual collapse, the degree of suffering will only be dictated by how long central banks keep the charade going,(remember the old analogy of the respsonsible central banker who should withdraw the punch bowl when the party is in full swing? What we have now is the central banks filling the punch bowls with superstrength moonshine, crystal meth and coke and stating “we will never take it away and if the neighbours complain we will just fill it more no matter how out of control the party gets!”) the longer it is drawn out and the more funny money thrown at markets to prevent the necessary correction, the worse the pain, and given the recent central bank assurances and what we already know on here, the pain is going to be massive.

    • hi Kevin,

      yah, but it will come around pretty quick if they cannot get the economy to restart.

      then the tide really will be out….


  6. How extremely fortunate that, just as so many countries are needing to borrow on an unprecedented scale, interest rates are at historic lows, due to the actions of “independent” central banks!
    A cynic might be tempted to think that this was all part of an orchestrated plan.

  7. Shaun,

    Just your regular reminder that the UK government, being the sole entity authorised to issue Pounds Sterling, does not (and cannot) borrow the currency that it and it alone can create.

    You keep picking up little clues, but ignore them Today’s clue that you stumbled across is the BofE’s contribution to the ‘National Debt’. You note it, question whether it should be included in the debt numbers and move on. But how did it come about? It came from the BofE buying stuff. In this case corporate bonds, CP and promissory notes of banks. It just credited banks’ reserve accounts and banks credited the accounts of their customers (if applicable).

    So how does the Treasury buy something, like a hospital, or PPE, or ventilators, or anything? In exactly the same way! The BofE credits the banks’ reserve accounts and the banks credit their customers’ accounts. That’s how the ‘National Debt’ comes about. Nothing has been borrowed, no bonds need to be issued, no taxes need to be collected. The simple act of the government spending, by issuing its own currency (in the form of reserves) creates the ‘National Debt’ and creates the currency. Taxation reduces the ‘National Debt’ by destroying currency (taxpayers have their bank accounts debited and their bank has its reserve account debited).

    Selling govt bonds (and buying them back) has no effect on the ‘National Debt’. It just exchanges one interest bearing liability of the public sector (reserve balances) for another interest bearing liability of the public sector (Gilts). From the government’s perspective, selling bonds is completely un-necessary. It’s not required for the government to be able to spend. The government only does so as a service to those savers who prefer to hold a fixed rate bond (even if at a negative yield) than money that pays a variable interest rate.

    The evidence mounts up every single day as to how government finances actually work, and yet you still seem to be taken aback every time the government spends whatever it needs to spend but doesn’t sell bonds to the private sector, doesn’t cause interest rates to rise and doesn’t cause runaway inflation.

    • So what went wrong with Zimbabwe 🇿🇼 then? Why does anyone go to work or start a business? Why not take an income from the government who just creates it as per your example above, nirvana! Free money!

      • Kevin, I sort of think that is the point I was getting at with negative interest rates destroying money like taxation, reduces the ‘national debt’. So a govt can spend what it likes , keeps taxation the same or even reduces it, as long as the CB ‘balances the books’ by charging negative rates.
        Of course ‘sentiment’ would cause problems of speculators thought that they could cause mischief on any particular currency, but if all the CBs are at it, there is no target.
        In principle ‘free money’ or ‘helicopter money’ can be doled out in such a world. So all we work for and our ‘value’ is measued by is ‘social credits’ al la China.
        Hey presto, modern feudal society at a stroke.

      • Zimbabwe took the unusual step of destroying most of its productive capacity by putting people with no idea about farming in charge of Zimbabwe’s farms. The subsequent fall in production, without any matching fall in demand was what started Zimbabwe off on an inflationary spiral. The government in a bid to give the impression that everything was OK with its policy of land re-distribution, succumbed to the temptation to borrow in foreign currency in order to import foodstuffs.

        Without any way of producing goods to export in order to earn foreign currency with which to service those debts, Zimbabwe was forced to keep borrowing more, or to attempt to sell its own currency in ever increasing amounts to buy the foreign currency that it needed.

        That’s what went wrong with Zimbabwe.

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