Who does the UK government borrow money from? Debt and deficit explained as borrowing drops in May

Rishi Sunak announced a £30bn job saving package on July 8 (Getty Images)

Earlier this week it was revealed that government borrowing eased back in May as the lifting of lockdown restrictions spurred on Britain’s economic recovery and drove tax revenues higher, according to official figures.

The Office for National Statistics (ONS) said government borrowing stood at £24.3 billion in May, down from £43.8 billion a year earlier at the height of the pandemic.

But where does the UK borrow this money from?

How does the government borrow money?

The government borrows money by selling bonds.

A bond is an instrument which indebts the seller to the buyer. By selling a bond the government is promising to pay the buyer on a certain date.

In addition to repaying, the government pays interest to the bond buyer.

Who buys the bonds?

Typically the buyers of bonds are financial institutions, such as banks, insurance companies, investment and pension funds.

The UK has traditionally been a safe bet for bond buyers, typically meaning there is a guarantee of a return.

When does the money need to be paid back?

This varies.

Some may be payable in just a month, while some may be in 30 years time.

What is the difference between deficit and debt?

Deficit is when the government spends more than it receives in tax and other revenues it borrows to cover the difference.

This borrowing is known as ‘public sector net borrowing’ but is often referred to as the deficit.

Debt is the amount that the UK has borrowed over the years. The UK’s debt rises when there is a deficit.

What is the UK’s deficit and debt?

The current UK deficit, according to the Financial Times, is set to hit 18% of the UK’s national income following Sunak’s coronavirus package.

At the end of May 2020 the UK’s debt was £1,950.1bn, according to ONS.

Can the Scottish Government borrow money?

Following the Scotland Acts 2012 and 2016, the Scottish Government has the power to undertake capital borrowing of up to £3 billion – with an annual limit of £450m.

In specific circumstances Scotland can undertake resource borrowing of up to £1.75 billion – with an annual limit of £600m.