Readers Question: I subscribe to The Economics, with updates from radio, CNN, sky news, etc, but still don’t really understand exactly who the UK is in DEBT to? please can you simplify and explain.
- The UK government borrows mainly from UK pension funds and building societies. About 30% of UK government debt is borrowed from foreign banks and investment funds.
It is also worth bearing in mind there are different measures of UK debt – 1) Government debt, and 2) external debt
1. Government Debt (public sector borrowing / ‘UK National Debt’)
This is the amount the government has borrowed to finance its shortfall between spending and tax revenue. (UK National Debt)
Most of this government debt is borrowed from the UK private sector (pension funds / investment trusts / building societies) / private individuals). For example, building societies buy government bonds to invest their savings to get a decent return.
Some of government debt is bought by oversees investors (e.g. German banks or US investment trusts). In Q3 2011, foreign holdings of UK debt were (£302 bn) or 31% of total debt.
source: DMO – remit and reserves 2011-12
Also, note since the Bank of England pursued policy of quantitative easing (asset purchase facility) The Bank of England now hold £205bn (21% of UK government debt)
Foreign Holdings of UK Debt
UK Debt held by oversees investors (source: DMO)
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