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We don’t need to cut expenses to pay off pandemic debt

With the reopening of the economy, the UK seems to be slowly getting rid of the economic impact of the pandemic.As the economy recovers, the government is introducing more funds from taxes to cover its costs, which means Government borrowing has declined compared with the same period last yearThis is a good example of how government borrowing can be reduced through a strong economic recovery-however, this administration has no hesitation in arguing that we must cut costs to repay pandemic debt and aid public finances.So far this looks like Increase student loan repayment, Cutting University Art Grants, Privatization Channel 4 with Not enough funds to fund the school Catch up with the learning that the student missed.

However, economic conditions mean that this hangover of austerity is both unnecessary and inaccurate.In fact, the UK has easily paid interest on its pandemic debt and is about to repay 240 million pounds of debt In the whole Nowadays. So why is there a commotion that needs to pay off debts?

The hypothetical problem is that current taxes are not enough to cover our expenses and repay our debts, which means we must borrow to cover these costs.Essentially, this means that we repay debt by issuing bonds new Debt-what economists call a common practice roll over’.What’s important is that our debt rollover itself does not increase the stock of debt: it just replaces old Debt and new debt.At the moment, this is in our favor because The interest rate we pay for new debt is lower than most old debt debt. Therefore, at present, by extending debt, we are actually reducing the cost of maintaining the same amount of debt.

The main problem with debt rollover is if Interest rates are rising faster than economic growth. But when we reduce the amount of debt we roll over Interest costs are very lowTherefore, the conditions are the most favorable. It is absurd when the government’s priority should be to support the people and businesses in the end and aftermath of the Covid crisis and prevent long-term economic trauma.

“…By extending debt, we actually make it cheaper to maintain the same amount of debt.”

In addition, the side effects of the Bank of England Quantitative Easing Program-Banks create new reserves to buy government bonds from financial institutions to inject capital into the economy-Our borrowing costs are even lower. This is because the interest paid by the bank for the new reserves is lower than the interest received on the government bonds it owns (on average) and therefore profitable. Since banks are part of the public sector, these profits will be returned to the government-thereby reducing the government’s debt costs.

In fact, the Bank of England has Purchased more debt than we borrowed during the pandemic This means that the bank controls a large part of the interest on our debt. Therefore, even if interest rates rise, the central bank will have many options to make it more manageable (the subject of future NEF research).

Given the government Continuously issue new bonds While paying off old debts, the only really important aspect of debt is its cost.This grade Not considering debt is irrelevant Interest cost On top. This is particularly important because there is no clear relationship between debt levels and debt costs, and there have been frequent disagreements over the past 60 years, as shown in the chart below.

This brings attention to the amount of government debt– Debt levels”-very misleading. However, after the National Bureau of Statistics released last month’s public sector financial data, Seven of the eight major news media in the UKChoose to report debt only grade No mention of how much debt actually is costThis kind of report may cause people to fear high debts that are practically risk-free, thereby unwittingly helping people agree that the government cuts public services unnecessarily. When politicians focus on rising public debt levels and do not focus on falling costs, this is a useful political tool to justify ideologically motivated cuts.

We know that the conditions for debt rollover are good, so the choice to cut expenses is voluntary.If and when to cut do When this happens, we should ensure that the harm is minimized and inequality will not increase. However, although the news media is concerned about the level of debt and the government uses this to justify the lack of funds for education and culture, our first task should be to resolutely oppose the idea that such reductions are necessary or were once necessary.

Picture: iStock

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