UK government dips into its emergency overdraft to fight Covid-19
With an extension to the UK’s lockdown looming, the government has agreed a deal with the Bank of England to extend its overdraft facility to support its cash flow and help to pay the bill for fighting Covid-19.
The government’s overdraft account with the Bank of England is referred to as a ‘Ways and Means’ (W&M) facility. The W&M account was used regularly by the government until the year 2000, when the Debt Management Office took control of the government’s cash management.
The facility has only been used on a number of occasions in the last 20 years and it ordinarily has a standing balance of around £400m.
The deal marks the highest extension to the overdraft facility since 2008, when £19.9bn was used to relieve financial strains caused by the market crash. The Treasury insists this is only a temporary measure and that the amount will be repair before the end of the year.
In a statement, the Treasury said: “This will provide a short-term source of additional liquidity to the government if needed to smooth its cashflows and support the orderly functioning of markets, through the period of disruption from Covid-19.
“The government will continue to use the markets as its primary source of financing, and its response to Covid-19 will be fully funded by additional borrowing through normal debt management operations. Any use of the W&M facility will be temporary and short-term.”
The announcement came less than 24 hours since analysis estimated that the Coronavirus Job Retention Scheme (CJRS) alone could cost between £30bn and £40bn for a period of three months. With no end in sight, it’s still unclear what the final bill will be once the dust settles. However, as the government has continually reminded us throughout the pandemic, we are all in this together.