Readers Question: Who exactly is the UK is in Debt to? please can you simplify and explain.
There are two types of debt:
- Government debt (Public sector debt / National debt) – The money the government has borrowed
- External debt. Liabilities the UK owe to the rest of the world – this is both private sector and public sector
Who does the government borrow from?
The UK government borrows mainly from
- UK pension funds / insurance companies (29%)
- Private corporations / other financial institutions
- UK building societies. (e.g. building societies buy government gilts to invest their savings to get a decent return.)
- UK Banks
- UK Private investors
- Foreign investors (foreign banks and foreign investment firms (2015 approx 25%)
- Bank of England Asset Purchase facility (Quantitative easing
- A pension fund will be interested in purchasing UK government gilts to gain a secure return on long-term investment.
- A charity / firms with excess savings may purchase government gilts to get a good interest rate whilst it decides how to use the money.
- A private individual may purchase gilts as part of a balanced portfolio of investment.
We owe money to ourselves
One feature of UK government borrowing is that, 75% of the debt we are borrowing from UK citizens and UK institutions. It is like a transfer from pension funds to the government.
Foreign holdings of UK Debt
How much does the government owe to foreign nationals?
UK Debt held by oversees investors (source: DMO)
Foreign holdings of UK debt can be seen at DMO – Gilt Market Data – Oversees holdings
In Q3 2015, 25.9% of UK debt was held by foreign investors. This is lower than the mid 2008 peak of 35%, but also higher than previous decades.
The UK has a high percentage of long-term maturity gilts. This means that the government is not liable to repay the gilt for a longer period. This means it doesn’t have to re-imburse gilt owners and resell gilts as frequently.
2. UK External Debt
Firstly, this is very different to government (national) debt. It is the total amount that people in a country owe to the rest of the world. It includes both government debt and private sector debt.
In the UK, external debt is currently over 430% of GDP (£6,200bn)
The vast majority of this is liabilities by the banking and finance sector. UK banks external liabilities amount to over £4,000.
However, it should be noted that this size of external liabilities is matched by UK external assets of £6,000bn
3. Private Sector Debt.
As well as government debt, we have private sector debt (households, business, finance sector). Total UK debt.
- Most household debt / business debt will be owed to UK banks and building societies