UK Debt Burden

Readers Comment: From National Debt: What appears tragic from this is that Britain’s cultural history can be read off from the 1900 – 2000 PSBR debt burden chart from the Bank of England above.

The chart’s peaks of PSBR above 100% of GDP mirror exactly the historical periods of social misery which George Orwell documented during the 1920s, 1930s and 1940s, with Britain characterised as a land of rootless tramps and unemployed all reliant on piecemeal charity, low paid jobs and money-lenders, a nation which even Orwell himself could not envisage having a universal welfare state. Our collective memories of this poverty finally begin to lift around 1965 and Beatlemania, a time exactly co-inciding with PSBR finally falling below 100% of GDP.

• Note: PSBR is the annual public sector borrowing requirement. This graph shows total public sector debt (often referred to as national debt).

It depends which way you look at it.

1. Cause or Effect. For example, the rise in borrowing in the 1930s was due to the Great Depression. In fact efforts to keep government borrowing down in 1931 (cutting benefits and raising taxes) only made the Recession much worse. It is fairer to say borrowing is an effect of economic malaise rather than a cause. At the same time, the long period of economic expansion made it easy to reduce government borrowing through the 1960s

You could also say: Look how much debt the UK had in 1945, yet, rather than focus on spending cuts, the government set up a very ambitious welfare state and universal health care.

Despite public sector debt reaching over 200% in 1950, this did not cripple the economy in the coming decades. The relatively huge level of debt proved no barrier to one of the longest periods of economic expansion on records.

People might say it was different in 1950

• It was easy to cut military spending which arose from the Second World War. (today Military spending is a very small % of overall government spending perhaps 3 or 4%)
• Private sector saving was higher in the 40s and 50s making it easier for the government to borrow.
• Demographic factors were more favourable in the 40s and 50s. There was a young growing workforce (boosted by immigration). Now we face an ageing population with increasing demands on health care and pensions.

Yet, whilst the above is true to a certain extent, if the banking sector recovers, the government should be able to recover a significant part of the financial sector intervention.

• Excluding financial sector intervention public sector debt is (46.6% per cent of GDP)
• With Financial sector intervention public sector debt is over £800bn or 56.8%.

So, even though public sector debt is definitely going to rise very rapidly, over the next few years. It is not necessarily the end of the world as some would like to make us fear.