LONDON (Reuters) – Britain’s finance ministry fears government borrowing this year could hit a record 337 billion pounds ($414 billion) due to the coronavirus, the Daily Telegraph newspaper reported late on Tuesday, citing an internal government document.
Under a worst-case scenario, where the economy does not recover, borrowing could surge to 517 billion pounds compared with a forecast of just 55 billion pounds for 2020-21 as recently as March, the newspaper said.
Officials warned ministers that Britain could face a debt crisis if measures were not taken to stabilise borrowing, which would require 25 billion-30 billion pounds of tax rises or spending cuts under the main scenario, and 90 billion pounds in the worst case.
A finance ministry spokesperson declined to comment on the report.
The Telegraph quoted an unnamed finance ministry source as saying the document was “a summary of all the existing levers,” and that no policy decisions had been taken.
The document, which the report said was drawn up for Finance Minister Rishi Sunak, set out a proposed package of tax increases and spending reductions which may have to be announced within weeks to boost investor confidence in the UK economy.
“Timing, pace and composition of any consolidation should be managed carefully to avoid the risk of stifling the economic recovery,” the document said.
Finance spokesperson for Britain’s opposition Labour Party Anneliese Dodds said both the finance minister and the prime minister must urgently make a statement rejecting the plans stated in the document that propose spending cuts after the coronavirus crisis.
Measures could include increasing income tax or value-added tax, ending a system of pension increases known as the “triple lock,” and freezing public sector pay, the report, citing the document, said.
“To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes … or reform one of the biggest tax reliefs (eg. pensions tax),” the document said.
In the best-case scenario, a so-called V-shaped recovery, the budget deficit was projected at 209 billion pounds. But the document said this was optimistic, and a more realistic scenario was a “prolonged recovery and some permanent damage to the economy” – a U-shaped recovery.
In the latter case, the deficit would fall to 83 billion pounds in 2021-22 and drop to 32 billion pounds by 2024-25, the report said.
Scenarios published last week by the Bank of England and in April by the government’s Office for Budget Responsibility both pencilled in fairly rapid rebounds for the British economy, assuming COVID-19 restrictions are lifted soon.
(Reporting by David Milliken and Estelle Shirbon in London; additional reporting by Aakriti Bhalla in Bengaluru; Editing by Matthew Lewis and Arun Koyyur)