By Andrew Brown,BBC NewsHome Secretary Amber Rudd said on Tuesday the UK’s economy was on the brink of a “full-blown recession”.
But she also said the government would seek to address the debts that had built up in the past five years, including rising household debts.
“I’m pleased that the Government has set out to make a debt-reduction package and to do it in a way that’s sustainable and in a sensible way,” she told the BBC’s Andrew Marr Show.
“We’re determined to make sure that people who have been the backbone of our economy are protected.”
The UK’s total debt rose to £9.6tn in March, more than double the previous year.
The government announced a debt reduction package last week, and is seeking to bring the debt to 5 per cent of GDP by 2020.
“The debt-to-GDP ratio is now at its lowest level in five years,” Ms Rudd said.
“That is a major step forward for our economy.”
But debt relief will only go as far as the £4bn needed to avoid a credit crunch, as the Treasury says it cannot afford to pay back debts it already owes.
The UK owes £7.8tn in debt, with the vast majority of it due to the 2008-09 financial crisis, which wiped out about £3.6 trillion of the country’s private sector debt.
Ms Rudd said the UK was in “a debt-saddled period” but had “reached the point of no return” and needed to be careful not to default on its debts.
The debt ceiling will also be raised again this week, as will the cost of borrowing for the UK to borrow money abroad.
But with the Treasury saying it could not afford to increase the borrowing cap, the government is hoping the government will find a way to increase borrowing and ease the burden on households.
The US government recently proposed an additional $20bn in emergency funding for the US economy.
But the UK is one of the few developed economies that has no direct funding from the US Treasury, meaning the UK will have to borrow more to repay the US if it wants to get more funds.
In a statement, the UK Treasury said the plan would “give us the flexibility to invest our surplus in the UK as the UK economy recovers”.
“It will enable us to spend more in the public finances while protecting our own finances and helping to provide a fair and balanced budget for the years ahead,” the statement said.
It is the first time in 25 years that the UK has not borrowed directly from the Treasury, and it comes after months of warnings about the risk of a debt crisis.
On Monday, the IMF warned that Britain was in a “dangerous” debt situation, with household debt rising to record levels and the government struggling to make ends meet.
“Even if the government can achieve its debt reduction targets, there is a risk that it will not be able to meet its debt obligations,” IMF deputy managing director Maria van der Hoeven said in a statement.
“If the government cannot reach its debt target, it will be unable to repay its debts, and the risks associated with the crisis are high.”