UK National Debt

The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts.

  • In Dec 2014, public sector net debt excluding public sector banks (PSND ex) was £1,483.3 billion (80.9% of GDP)
  • Source: [1. ONS public sector finances ] (page updated Feb 12th 2015)


Budget deficit – Annual Borrowing

This is the amount the government has to borrow per year.

  • In 2012/13 net borrowing was £115bn (7.4%) (Excluding Royal mail and transfers)
  • In 2013/14 net borrowing is forecast at £105.5bn or 6.5% of GDP (Excluding Royal Mail and transfers)
  • From April to December 2014, public sector net borrowing excluding public sector banks (PSNB ex) was £86.3 billion

UK Net borrowing


Latest statistics at OBR

Note this graph excludes sale of Royal Mail which temporarily reduced actual borrowing in 2012-13


Figures for 2013-14 onwards are forecasts.

View:  Latest statistics at OBR

Further reading on

Deficit down but Debt up?

One potential confusion is that politicians may say the budget deficit is coming down. But, at the same time, national debt is rising.

  • If annual borrowing falls from £80bn to £50bn, the annual deficit is lower. But, at the same time, the national debt (total debt) is still rising.

% of GDP

The most useful measure of national debt is to look at debt as a % of GDP. For example in 1950, UK national debt was £640bn (at 2005 prices) – but this was 250% of GDP.



Recent History of UK National Debt

After a period of financial restraint, from mid 1990s, public sector debt at a % of GDP fell to 29% of GDP by 2002. From 2002 – 2007 , national debt  increased to 37 % of GDP. This increase in debt levels occurred  despite the long period of economic expansion; it was primarily due to the government’s decision to increase spending on health and education (see: Government spending in this period). There has also been a marked rise in social security spending.

Since 2008, public sector debt has increased sharply because of:

  • 2008-13 recession (lower tax receipts, higher spending on unemployment benefits) The recession particularly hit stamp duty (falling house prices) income tax and lower corporation tax.
  • These cyclical factors have also exposed an underlying structural deficit. (deficit caused by spending greater than tax, ignoring cyclical factors)
  • Financial bailout of Northern Rock, RBS, Lloyds and other banks.

Comparison With Other Countries

Although 77% of GDP is a lot, it is worth bearing in mind that other countries have a much bigger problem. Japan for example has a National debt of 225%, Italy is over 120%.  The US national debt is close to 75% of GDP. [See other countries debt]. Also the UK has had much higher national debt in the past, e.g. in the late 1940s, UK debt  was over 180% of GDP. Nevertheless, there are reasons why the UK couldn’t borrow the same sums that we did post-war.

History of National Debt

UK National Debt since 1900.


Source: Reinhart, Camen M. and Kenneth S. Rogoff, “From Financial Crash to Debt Crisis,” NBER Working Paper 15795, March 2010. and OBR from 2010.

See also: Historical National debt

These graphs show that government debt as a % of GDP has been much higher in the past. Notably in the aftermath of the two world wars. This suggests that current UK debt is manageable compared to the early 1950s. (note, even with a national debt of 200% of GDP in early 1950s, UK avoided default and even managed to set up the welfare state and NHS. In the current climate, the UK would struggle to borrow the same as in the past.  For example, private sector saving is lower, and the US wouldn’t give us big loan like in the 1950s.

But, how did the UK reduce its debt so much from 1950 to early 1990s – despite rising levels of real government spending? – See:  how the UK reduced debt in the post-war period


Historical budget deficit

Annual borrowing since 1950


Debt and Bond Yields

Bond yields reflect the cost of borrowing. Lower bond yields reduce the cost of government borrowing.


Since 2007, UK bond yields have fallen. Countries in the Eurozone with similar debt levels have seen a sharp rise in bond yields putting greater pressure on their government to cut spending quickly. However, being outside the Euro with an independent Central Bank (willing to act as lender of last resort to the government) means markets don’t fear a liquidity crisis in the UK;  Euro members who don’t have a Central Bank willing to buy bonds during a liquidity crisis have been more at risk to rising bond yields and fears over government debt.

See also: Bond yields on European debt | (reasons for falling UK bond yields)

Cost of Interest Payments on National Debt


The cost of National debt is the interest the government has to pay on the bonds and gilts it sells. In 2011/12, the debt interest payments on UK debt are anticipated to be £48.6 bn (3% of GDP). This is a sharp increase from two years ago, but still quite manageable.  See also: UK Debt interest payments

As a % of GDP, debt interest payments are relatively low.


In 1985-86, debt interest payments reached 4.5% of GDP


How to reduce the debt to GDP ratio?

  • Economic expansion which improves tax revenues and reduces spending on benefits like Job Seekers Allowance. The economic slowdown which has occurred since 2010 has pushed the UK close to a triple dip recession and therefore the further squeeze on tax revenues has led to deficit reduction targets being missed.
  • Government spending cuts and tax increase (e.g. VAT) which improve public finances and deal with the structural deficit. The difficulty is the extent to which these  spending cuts could reduce economic growth and  hamper attempts to improve tax revenues. Some economists feel the timing of deficit consolidation is very important, and growth should come before fiscal consolidation.
  • See: practical solutions to reducing debt without harming growth


What is the Real Level of UK National Debt?

It is argued by some that  the UK’s national debt is actually a lot higher. This is because national debt should include pension contributions and private finance initiatives PFI which the government are obliged to pay.

The Centre for Policy Studies (at end of 2008) argues that the real national debt is actually £1,340 billion, which is 103.5 per cent of GDP. This figure includes all the public sector pension liabilities such as pensions, and private finance initiative contracts e.t.c (and Northern Rock liabilities).

  • However, these pension liabilities are not things the government are actually spending now. Therefore, there is no need to borrow for them yet. It is more of a guide to future public sector debt. I don’t accept the fact that future pension liabilities should be counted as public sector debt. In 2006, the Statistics Office did change calculations to include some PFI into public sector debt figures [pdf –]
  • However, it is a sign that it will be difficult to improve finances in the future.

Another problem is that with the financial crisis, the government have added an extra £500bn of potential liabilities. Note: the Government has offered to back mortgage securities. They are unlikely to spend this money. But, in theory the government could be liable for extra debts of up to £500bn. If we include this bailout package as a contingent liability National debt would be well over 100% of GDP. However with a modest improvement in the bank sector, the necessity for these bailouts look unlikely, unless there is a very sharp deterioration in global finance markets – which is always possible.

Forecast for National Debt

  • Current forecasts for UK debt predict that the UK public sector debt to GDP ratio will peak at 79.9% in 2015/16. However, in the past few years, government forecasts have regularly been revised upwards due to poor growth and disappointing deficit reduction
  • What are the prospects for UK debt default?

Debt including financial sector intervention

UK debt

Potential Problems of National Debt

  1. Interest Payments. The cost of paying interest on the government’s debt is very high. In 2011 Debt interest payments will be £48 billion a year (est 3% of GDP). Public sector debt interest payments will be the 4th highest department after social security, health and education. Debt interest payments could rise close to £70bn given the forecast rise in national debt.
  2. Higher Taxes / lower spending in the future.
  3. Crowding out of private sector investment / spending.
  4. The structural deficit will only get worse as an ageing population places greater strain on the UK’s pension liabilities. (demographic time bomb)
  5. Potential negative impact on exchange rate (link)
  6. Potential of rising interest rates as markets become more reluctant to lend to the UK government.

However, Government Borrowing is not always as bad as people fear.

  • Borrowing in a recession helps to offset a rise in private sector saving. Government borrowing helps maintain aggregate demand and prevents a fall in spending.
  • In a liquidity trap and zero interest rates, governments can often borrow at very low rates for a long time (e.g. Japan and UK) This is because people want to save and buy government bonds.
  • Austerity measures (e.g. cutting spending and raising taxes) can lead to a decrease in economic growth and cause the deficit to remain the same % of GDP.  Austerity measures and the economy | Timing of austerity

Who Owns UK Debt?

The majority of UK debt used to be held by the UK private sector, in particular, UK insurance and pension funds. In recent years, the Bank of England has bought gilts taking its holding to 25% of UK public sector debt.

Overseas investors own about 30% of UK gilts.


More at: who owns UK debt?

Total UK Debt – Government + Private

  • Another way to examine UK debt is to look at both government debt and private debt combined.
  • Total UK debt includes household sector debt, business sector debt, financial sector debt and government debt. This is over 500% of GDP.Total UK Debt

Private sector savings


When considering government borrowing, it is important to place it in context. From 2007 to 2012, we have seen a sharp rise in private sector saving (UK savings ratio). The private sector have been seeking to reduce their debt levels and increase savings (e.g. buying government bonds). This increase in savings led to a sharp fall in private sector spending and investment. The increase in government borrowing is making use of this steep increase in private sector savings and helping to offset the fall in AD. see: Private and public sector borrowing


Government spending


More statistics on UK government spending

Other Countries Debt

See also:


295 Responses to UK National Debt

  1. Fixing Britain June 25, 2013 at 1:48 pm #

    Great site. Saw this video recently towards ‘A New Economic Policy for Great Britain’. Some radical ideas there.

  2. Paul July 29, 2013 at 1:51 pm #

    When you compare the UK debt problems to other countries, it really doesn’t seem that bad. Not good, of course, but it’s a reminder that there are MANY people who are worse off and struggling wit debt.

  3. Ralph Musgrave January 9, 2014 at 7:27 am #

    The above article omits to mention that the real or inflation adjusted interest we pay on the debt is zero approximately.

    Another point that will have debt-phobes completely flummoxed is thus. If inflation is near zero and the real or inflation adjusted rate of interest paid on the debt is zero, then then the debt becomes the same thing as money (monetary base).

  4. mr cannan January 13, 2014 at 1:14 pm #

    is this right and is it american

  5. Ahmed Aden Ismail May 6, 2014 at 7:29 am #


  6. ian deswarte October 28, 2014 at 10:41 pm #

    So if we’re a trillion in debt and yet the government always pays its lenders on time, how come we’re a trillion pounds in debt??

    • Tejvan Pettinger October 29, 2014 at 7:38 am #

      The government is paying off old loans (Bonds) but taking out new ones at the same time.

    • jamie April 3, 2015 at 10:33 pm #

      Yo’re not meant to get out of debt – jeez!

  7. Martin Pollins MBA FCA CTA November 27, 2014 at 5:02 pm #

    I am impressed with the clarity of your explanations. However, one thing that eludes me is in connection with the so-called National Debt, currently running at over £1.5 trillion (gross). About a quarter is due to the Bank of England (£375 billion) and arises from QE. The rest is due to Overseas Lenders, Insurance Companies and Pension Funds, Building Societies, Investment Trusts, Local Authorities and Public Corporations and Private Individuals. But I can’t seem to find out exactly what is due to each of these categories. Am I being stupid?

    Even a FOI request to HM Treasury hasn’t helped. Why is it a secret?

    • Tejvan Pettinger November 27, 2014 at 6:52 pm #

      This may help

    • Samir Rai April 2, 2015 at 8:04 pm #

      Martin , under some agreed convention Govt are barred from printing currency. So the £ 375 billion QE debt held by the BOE will need to be repaid by the govt. and the QE will be extinguished . Therefore the govt will need to find money to do this.

  8. Tom January 3, 2015 at 12:38 am #

    Born into bondage

  9. sk January 16, 2015 at 9:08 pm #

    Hi, just want to say that I have stumbled upon this page, and found it to be very succint in explaining how government debt works!

    I have one quick question though; what determines the rate of interest (or yield) that the government pays on its gilts? Do credit rating agencies play a part? Or is it simply demand and supply?

    If bond yields increase, does that have an effect on bond rates in general?

  10. Tom Nightingaled February 12, 2015 at 6:39 pm #

    Debt interest seems, at first, to be just an expense, but it is INCOME to those who receive it.

    Payment of interest just shuffles money around, it doesn’t consume resources.

  11. Anastasia March 26, 2015 at 7:19 am #

    The best way to understand the national debt is to measure it as the percentage of GDP, as to how much it represents.

  12. Anastasia March 26, 2015 at 7:22 am #

    The best way to understand national debt is to compare it with the GDP as a percentage.

  13. Adam December 18, 2012 at 9:17 am #

    Debt isn’t as bad as in the 1950s and 1940s – but then we still set up the welfare state


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