Government faces dash for cash as it seeks to raise £225 billion over four months

Response to HM Treasury’s announcement of its financing remit

The Government is seeking to raise £225 billion over the four months from April to July through issuing gilts, highlighting the stark nature of the Government’s financing needs amid the current crisis, the Resolution Foundation said today (Thursday) in response to new a HM Treasury announcement on gilt issuance and the ONS’ public finances data for March.

The Foundation notes that the scale of immediate gilt issuance announced today by the Treasury shows the Government is planning to frontload its financing requirements, given the Office for Budget Responsibility’s estimate that £382 billion would need to be raised for the whole financial year.

However, given huge uncertainties around both the scale and duration of the crisis, the Foundation says the Government’s financing needs may be far larger. It estimates that a six-month lockdown would require the government to raise around £500 billion in financing this financial year.

In such a scenario, the Foundation suggests that the Bank of England should be ready to provide additional support if necessary through temporary monetary financing.

The Treasury’s announcement follows the latest ONS public finance figures for March, which only cover a week of the lockdown period. They do however offer a few hints of the coming public finance pressures, with cash VAT receipts down £5.6bn (70 per cent) in March 2020 compared to March 2019.

Cash expenditure was also up in March 2020, with departmental outlays up £31.5bn (5 per cent) on the year to March – the highest they have been on record.

Richard Hughes, Associate at the Resolution Foundation, said:

“The combination of falling tax receipts as economic activity declines and extra spending to combat the economic crisis means that the Government is facing a dash for cash to cover its huge financing requirements.

“The £225 billion of gilts that will be issued over four months shows the scale of cash the Government needs, and that need may grow if economic activity continues to be significantly depressed for over three months.

“In such a scenario, close cooperation between the Government, the Bank of England, and the gilt market will be needed as the UK finance its rightly unprecedented response to the coronavirus crisis.”