The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts.
- UK public sector net debt in March 2012 was £1022.5 billion, equivalent to 66.0 per cent of GDP – (note this excludes financial sector intervention.)
- Source: Office National Statistics publications[1] (page updated May 4th, 2012)
If all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds), the Net debt was £2311.6 billion (147.3 per cent of GDP. This is known as the unadjusted measure of public sector net debt.
- The Public sector net borrowing PSNB (annual government borrowing) for 2010/11 was £143.2 billion or 11.7% of GDP.
- The equivalent OBR forecast for 2011/12 is £122 billion.
Graph Showing UK National Debt
National debt UK : ONS
After a period of financial restraint, National debt at a % of GDP fell to 29% of GDP by 2002. Then, national debt as a % of GDP increased from 30% in 2002 to 37 % in 2007. This was despite the long period of economic expansion; it was primarily due to the government’s decision to increase spending on health and education. There has also been a marked rise in social security spending.
Since 2008, National Debt has increased sharply because of:
- Economics 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 exposed an underlying structural deficit
- Financial bailout of Northern Rock, RBS, Lloyds and other banks.
Comparison With Other Countries
Although 62% 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 194%, Italy is over 100%. 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.
Debt and the Euro
One good feature of the UK’s current debt position is that it hasn’t led to a rise in government bond yields. Countries in the Eurozone with similar debt levels have seen a sharp rise in bond yields putting greater pressure on 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: Bond yields on European debt | (reasons for falling UK bond yields)
Cost of National Debt
The cost of National debt is the interest the government has to pay on the bonds and gilts it sells. In 2011, the debt interest payments on UK debt are anticipated to be £48.6 bn (3% of GDP). This is a sharp increased on two years ago. In 2011, the increased cost of interest payments outweighed a significant % of the governments spending cuts. (what does government spend money on)
Future of National Debt
It is estimated gross government national debt will could rise close to 100% of GDP by 2015. It is way above the government’s sustainable investment rule of 40% maximum.
However, the debt situation can be improved through:
- Economic expansion which improves tax revenues and reduces spending on benefits like Job Seekers Allowance. However, the economic slowdown which has occurred since 2010 risks pushing the UK bank into a double dip recession and therefore further squeeze on tax revenues.
- Improved performance of banks increases prospect of regaining financial sector intervention
- Government Spending cuts and tax rises (e.g. VAT) which improve public finances. However, the big issue is the extent to which these spending cuts could reduce economic growth and therefore hamper attempts to improve tax revenues.
- See: practical solutions to reducing debt without harming growth
History of National Debt
UK National Debt since 1918
See also: Historical National debt
National Debt since 1922. Source: HM Treasury and UK Public Spending [1]
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 - Treasury.gov.uk]
- 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 an improvement in bank sector, the necessity for these bailouts look unlikely, unless there is a very sharp deterioration in global finance.
Forecast for National Debt
UK Debt
UK public finances at HM Treasury
- Current forecasts for UK debt predict that the UK debt to GDP ratio will peak at 71% in 2013/14
- By 2015/16 there will be a fall in debt to GDP ratio to 69% of GDP
- However, this forecast of debt reduction is based on relatively optimistic forecasts for economic growth. Given increased risk of economic stagnation or even double dip recession, tax revenues are likely to be lower than anticipated. If the UK does enter recession, it will be very difficult to stabilise debt to GDP ratio by 2015.
- General government gross debt is a slightly wider definition of debt. It is used in the Maastricht criteria for defining debt.
Debt including Financial sector intervention
Problems of National Debt
- 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.
- Higher Taxes / lower spending in the future.
- Crowding out of private sector investment / spending
- The structural deficit will only get worse as an ageing population places greater strain on the UK’s pension liabilities. (demographic time bomb)
- Potential negative impact on exchange rate (link)
- 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 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) This is because people want to save and buy government bonds
- Savage 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
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
Other Countries Debt
See also:
- Should we worry about National Debt?
- The biggest lie in UK politics? – Is the debt issue exaggerated?
- Should the pace of the UK’s deficit reduction be slower?
- How much can a government borrow?
- US National Debt
- Books on Debt at Amazon.co.uk
- Problem of Personal Debt in the UK
- How is National Debt financed?
could you inform the Intergenerational Foundation of the national debt history and also how much is owed to Britain as I don’t understand economics that well and your site makes it clear, however, it seems to conflict with their statement account. thank you
I think as a country we ought to be proud of what we have achieved seeing how debt has dropped proportionately in the first graph: UK National Debt since 1918. We are pulling back to keep the country ticking over financially and it seems that there is a plan, despite the “naysayers” in how to maintain it.
The other areas which need to be addressed which affects us individuals and groups is not in this remit and the power to put that right is in the hands of government and the industrial leaders.
A response I made to someone who linked this article to me.
”
Just on a brief glimpse the article justifies high debt levels with comparisons to Italy (not the best example on hindsight) and Japan (which has the advantage of a domestic population that really likes to save and buy government bonds, thus not relying as heavily on markets/governments ect).
Yes our government had a higher debt level after world war 2, our economy was in little pieces and it took a long time to pay back the US, this is not a situation we wish to repeat. We also enjoyed rather nice periods of growth, which helped quite substantially. The world is also a different place now, we are far more globalised, interconnected ect. The risks are far higher, we are not special.
Bond yields are low largely because markets have faith in our seriousness and ability to tackle the deficit. (It is also helped by the rounds of QE where the government has been buying our own bonds helping to decrease the price of borrowing). Using it as a reason to not take the debt/deficit seriously is a little silly considering the reason is so low is because we are tackling the deficit (although the argument could be made that we could ease the pace/depth a little in response to this. We still couldn’t make a U-turn).
It then mentions that the cost of the national debt is increasing noting that it was £48.6 bn (which is more than we spend on the military) and is larger than some of the cuts that we are making. Not sure what its point it’s trying to make is. It seems to highlight that it is a big problem that is getting bigger and should be tackled. Or maybe it awkwardly left it there in hopes that no one would notice it.
It then goes onto mention how future national debt is still going to increase up to 2015 (not sure how this is helping its argument). It then talks about economic expansion without explaining how it would achieve this (yes it would help tackle the debt/deficit, the question is how). It makes the point of how taxes/spending cuts can dampen growth, once again it is correct, they can. What are the alternatives though and would it be less dangerous to pursue the course its advocating.
“Problems of National Debt
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. Higher Taxes / lower spending in the future. Crowding out of private sector investment / spending The structural deficit will only get worse as an ageing population places greater strain on the UK’s pension liabilities. (demographic time bomb) Potential negative impact on exchange rate (link) Potential of rising interest rates as markets become more reluctant to lend to the UK government.”
Worth reading that bit of the page, not very easy to dismiss as easily as the author does.
It then talks about different types of debt, we might not top all of them in terms of GDP per capita, but we do worst overall.
Simply put bills have to be paid eventually, economics is complicated and my fingers hurt.
“
@Ade
Oh dear. Let me explain to you that printing money is a tax. When the government prints money, it raises inflation. This directly reduces how much you can buy with your salary. ie It has exactly the same effect as raising income tax, except that because it directly devalues sterling, it hits everyone, including those on benefits.
The ‘Government’ does not ‘owe’ this money, THE TAXPAYER DOES. The only money that the Government has is what it collects from US THE PEOPLE.
I think it helps to understand what taxation is . I define it as follows:
Taxation – A portion of purchasing power that is transferred from the workers /Investors in the Private Sector to:
1) The suppliers in Public Sector(Public Sector Suppliers)
2) Members of the population at large who are judged to be worthy recipients.
3) National and international creditors who have lent money to the country(i.e Interest payments)
Note:Those workers /investors in the Private sector who are suppliers to the Public Sector(in part or in whole) are to be regarded as Public Sector Suppliers in the context of this definition
So many of ‘US ‘the people are net recipients of Tax (i.e purchasing power) and not net contributors.
I suppose it’s not as simple as just crossing off noughts.
UK like many countries waste energy
Progress technology has made the private sector rich.
Top 5% own UK wealth.
Economic cake not shared equally as it used to be give and take a bit.
Maybe it’s all down to simple idol worship; reaching for the stars.
Even rubbish is not what it used to be, we only had small house hold bins
What we didn’t throw away we would reuse or burn on the fire to keep warm
Take back empty bottles get 3p nice bit of pocket money for us children
These days the bins are twice the size and some houses want two or three of them
There is wealth in the United Kingdom, but it’s like blocked sewage water, stagnant!
Unfortunately it’s the elderly and disabled who pay the price they are ones left to suffer the worst. Tell me it’s not an evil government that we are rules by and I will tell you we are not a wicked people.
i need to know how muck the uk own
also how much india own
WE as 1 people Black White Asian or any other of the wonderfull representations of bipedal homonids need to see our selves as 1 people.
Not segregated into ethnic/religious groups to be manipulated, to be brought up to hate and point the finger at other neatly seperate groups. Blaming each other to cover our own ignorence of the true nature of WHY?
Why are there poor,hungry, disposseed peoples?
Why is there such a huge gap between those that have, and those that have nothing?
Why do religious/govermental leaders live in absolute opulence?
Why do religious leaders teach that anyone who does not believe what is in this version of this book is wrong?
Why do we live in a society that teaches/encorages us to covert wealth and status?
Why do we need a central bank, which loans money to other banks at interest, those other banks then lend to you at even higher interest.
Why do these same central banks (all the big western economies have one) print all the money for the country/ and sell it to the government of that country……
That people is where the huge country debts comes from people. Money is lent from the central bank at interest. the only money we have comes from the central bank, so we will always owe more money back that we will ever actually have.
This means logically and not in anyway fiction, that those who run these central banks are those that run the country. These people have the power to say to the leagal ellected government, WE CALL IN THE LOAN…. the country goes bankrupt and that leagl elected government is who the media tell us to point the finger at for mass unemployment, huge public spending cuts, schools and hospitals being run into the ground.
so why does the bigest question of all get asked.
WHY DO WE NEED A CENTRAL PRIVATELY OWNED BANK?
it seems this is the cause of all our problems and the solution is to get rid of this corrupt banking system
The Bank of England is owned by the Government.
well if the government , were a business they would not last for two days.. what a bunch of childish idiots .. i mean who needs that old crap of little boys and girls fighting in school … and more important what idiot would send lots of money to greece , etc.. when we are in the shite .ourselves.. RIP OFF BRITIAN .. we the poor pay for all the cockups made by the rich ,,, i hate my own country . WHY cos its run by tossers . (bring back enock..)
The contraction we saw last year is likely to be followed by a further decline in the current quarter. If we don’t deal with the debts, I think our problems will be worse.
Government actually does not help the economy, but rather, it destroys it. It’s rather simple… When the Government gets involved in business creation or provides federal loans of federally backed loans to businesses, they aren’t actually taking any direct risk except at the expense/risk of the tax payers (which are the people). As a result, these types of business loans provided by or backed by the government tend to go to less qualified individuals/businesses who are unable to qualify for private loans.. and for very good reasons. More likely than none, these businesses that rely on federal loans are usually unable to repay the loan back or file for bankruptcy because no one else saw value in this company and it wasn’t coming out of the government’s pocket. This means that with every failing business that the government forces the people to take a risk on (through taxes) the more money that has involuntary been taken out of my pocket or your pocket to buy other goods and services that other jobs have been created for.
In the same vein, when the Government pushes stimulus packages or job creations, they are actually creating short term solutions for long term problems. They basically say, ‘Here, you build this bridge, fix it up and make it look nice.’.. But they don’t see that there is no return of investment in that project and there will be no profit generated from such project. Sure the bridge will look nice but it won’t pay for little Jimmy’s shoes.
Government regulations also restrict business growth technologically as well as size in labor force. For example, let’s say I’m as a clothing manufacturer owner and I’d like to turn out as many products for my business with the least amount of resources. To do that, I will build 3 machines to take the place of 90 workers. I can now mass produce making clothes effectively and sell it at a much cheaper price. Now, I know what the pro-government thinkers are thinking.. ‘Well you just eliminated 90 jobs!” On the contrary, because I’m producing my products more effectively and selling hundreds more at a much faster rate, I decide to open 5 more stores nationally because I’m generating more profit and want to reinvest in my company. So I create 30 more jobs in terms of store managers and machine operators… but most importantly, I create products now hundreds more people can afford to purchase. I also have 15 machines working for me and I need those machines built and serviced, which creates even more jobs. Not only have my selling costs gone down but now it’s much cheaper for me to stay in business as well as easier for competitive businesses to start and challenge my products (either in quality or pricing).
On the flip side, if the government told me that I have to hire 5 workers for every machine I install then I’m actually losing money on an ineffective labor force with a very high potential to mark up costs of my products, send my manufacturer overseas or go out of business completely.
“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. ”
But it is only current borrowing that is “actually spending now”. Accumulated debt is an obligation to pay in the future, just like PFI and pensions and, at least in part, over a roughly similar time period.
However, such debts are not a burden on the economy as a whole, unless owed overseas. The repayments just mean a shuffling of spending power among UK citizens.
The tax implications may be politically significant. If PFI spending was not productive then the taxes will have to be taken from a lower GDP than there might have been (if the spending had been productive).
If the PFI’s were needed because the Government was spending tax revenues on other things than needed investment, then it can be argued the PFI effectively funded that spending.
Still i don`t get it.
My question is who are this lenders ?From where the government is borrowing ?I mean is there any specific entity that we can point our finger kind of countries like china or USA.
Call me idiot because i don`t have any clue on economics .I see it from this perspective
If i have to take a loan from lender the lender obviously will need some warrant otherwise is not giving anyone just like that.If i have a good credit rate the lender will carry on lend
me.
Alex,
This is the golden question. In US the federal reserve, privately owned, creates money out of nothing then charges the American People interest!
Most people think that Federal means elected government owned…. It’s no more government owned than Fed-Ex!
Look for who controls the money supply and who’s best interests are being protected.
It’s more than dull economics it’s liberty that’s at stake.
Best to all.
Jaz
You’re not supposed to understand, otherwise the scam would then be laid bare for all to see.
We could print this money that we Borrow, ideally, Govt would behave sensibly and pring less than we borrow to reiggn in inflation.
BUT nyway, if we printed this money, as opposed to borrowing it from rich bankers, there would be no Govt borrowing, hence no Government debt hence no need fot you to pay taxes.
Bankers are stealing your money, in order to do this, they have to put in place politicians in the leadership of all the major political parties who will ensure instead of coining our own money as a sovereign nation, we borrow it from Bankers. JFK tried to issue his own currency via executive order 11110 look it up on youtube, so they killed him.
It is perhaps simpler to understand government borrowing in terms of a credit card loan .
a) You borrow on your card-card 1
b) You only pay the interest on the loan
When finally the credit card company insists that you clear the debt –you simply open a 2nd credit card account with another provider.
Borrow sufficient to pay off credit card 1 and repeat b)
it can however become a little tricky when B) is a higher value than your income.
The hope is that you will in time and get a higher paying job.
If you don’t you become’ Greece’