Readers Question: Who did the 31bn 2007 National debt interest payment go to?
The UK National debt at the start of 2008 was £512 bn.
On this debt the government have to pay interest payments, which are around £30 billion a year.
To finance the National debt, the Bank of England (on behalf of the government) sell bonds to the private sector. Most of this government debt is bought by financial institutions such as:
- Pension funds
- Investment trusts
- Private individuals
Therefore, the interest payment is paid to those who buy the government bonds and gilts.
Readers Question: why do all these people expect you to do their homework ?
I am interested in explaining economic principles rather than doing homework. Some questions I don’t answer because I get the feeling it is just answers they want. I tell my students rather than do nothing and say ‘economics is too hard’ they should ask questions about the homework I set; but, alas they rarely have the initiative.
4 comments ↓
I do not understand. You say the govt borrows from pension funds but I read in the press that such funds are in jeapordy because of the credit crunch, so how can they lend money?. They NEED money
[...] Readers Question: I do not understand. You say the govt borrows from pension funds but I read in the press that such funds are in jeopardy because of the credit crunch, so how can they lend money?. They NEED money (From: Who Lends the Government Money?) [...]
I have been told that the B of E buy bonds from the government with cash they create out of thin air in ‘open market operations’. I have also been told that the B of E is a privately owned corporation. Is this all nonsense?
does the bank of england loan money to the government……if so why do they have to pay interest…if not why not…….in todays fractional reserve system they have a licence to invent money …..the goverment deposits……the bank of england lends them at a 9-1 ratio …….if the government owns the bank of england they would be paying interest to themselves……..why cant we print the money we need instead of taxing people…….we could buy the public services Build roads and bridges etc and this would not inflate the system as banks are flooding the market with new money anyway………..everytime a bank creates a loan they are pushing up inflation arnt they, which means that our government is pushing up inflation when they borrow….but if you borrow without interest you cannot push up inflation. When people talk about money they talk about it like religion…….they say if you introduce more paper money to the system then they will be increased inflation…But i have not heard a satisfactory answer..as to why…just that you just have to trust that thats the way it is…why…..there isnt enough physical money in the system anyway …..who would know if you printed what you needed and then withdrew it at a later date ……..when the bank of england prints money do they put an add in the paper ? do they give it away to people in the street ……as such everyone will have loads of money…..and therefore it will not be in demand which will push up inflation ? if the government has a bank account at the bank of england ….Why cant they increase there balance by however much they like …….its electronic money….ie just some numbers on a bank balance anyway…until you withdraw some……and they control the physical money anyway……can someone just put me out of my misery…………..i just dont get it …..people talk about money like it has a life of its own and not created by people, like i know it is……..it is a product…..it doesnt come from god……if the goverment really wanted to they could create some instead of collecting taxes…………but then greedy banks wouldnt make as much money out of us because we pay roughly 40 percent of our money in tax which makes us skint enough to need loans to buy stuff
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