Why is UK Debt Rising?

The graph below show that UK debt is rising as a % of GDP

 Net Debt refers to the total amount of money the Government owes to the private sector. If the Government spends more than it receives in tax then it runs an annual budget deficit; this means it has to borrow from the private sector, by selling bonds and gilts. The National Debt is the cumulative amount of debt the government has.

Since 2003, the UK economy has been growing at 2.5% per annum, Unemployment is falling and employment levels are at record levels. In theory this should improve the government finances. This is because higher growth leads to increased tax revenues, also the government needs to spend less on unemployment benefits. However, the data show that total UK debt is increasing at a faster rate than GDP.

This is because:

• High Levels of Government Spending - see how government spending has increased on NHS and education 
• Tax receipts being less than anticipated.
• Demographic changes increasing the number of retired people
• Increase in benefit claimants for sickness benefit and disability benefit. (In past times these people may be counted as unemployment, but increasingly people are preferring to be on benefits)

Basically, the government has sought to do anything that is politically unpopular. From a political view, there is little to be gained from increasing tax and cutting spending.

Note other countries have a higher debt as a % of GDP. US has 65% for example.