Public finances vulnerable to shocks after Covid, says watchdog

The government faces an “increasingly risky” situation as debt has soared and the cost of Covid mounts, the fiscal watchdog says.

The Office for Budgetary Responsibility said government debt now stood at some £2.2 trillion or 99.2% of GDP – a rate not seen since the early 1960s.

Meanwhile, there were no plans to fund about £10bn a year of Covid spending on things like health and transport.

OBR boss Richard Hughes said chancellor faced a “difficult trade-off”.

“[He must decide where] to spend now to prevent the risks and threats that he knows about versus keeping his powder dry, keeping debt low, keeping borrowing low so that he can deal with the threats he can’t anticipate,” Mr Hughes told the BBC’s Today programme.

The UK economy contracted sharply last year as swathes of businesses closed in lockdown, but it is now recovering strongly.

However, the government bill for emergency measures such as the furlough scheme continues to climb, pushing up its debt pile by about 20%.

In its Fiscal Risks report, the OBR said Chancellor Rishi Sunak was trying to tackle this by cutting future non-Covid public spending and increasing corporation tax from 19% to 25%.

Agencies