The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts. In recent months, government debt has increasingly been bought by the Bank of England in its policy of quantitative easing.
At the end of July 2009, UK public sector net debt was £800.8 billion at the end of July (or 56.8% of National GDP) – Source: Office National Statistics [1]
Excluding Financial sector intervention, public sector debt is £658.1 billion or (46.6% per cent of GDP)
Graph Showing UK National Debt
National debt UK : ONS
After a period of financial restraint, National debt at a % of GDP fell to 29% of GDP by 2002. Then, national Debt as a % of GDP increased from 30% in 2002 to 37 % in 2007. This was despite the long period of economic expansion. It was primarily due to the governments decision to increase spending on health and education. There has also been a marked rise in social security spending.
Since 2008, National Debt has increased sharply because of:
- Economics Recession (lower tax receipts, higher spending on unemployment benefits)
- Financial bailout of Northern Rock, RBS and other banks.
Although 56.6% of GDP is alot it is worth bearing in mind, that other countries have a much bigger problem. Japan for example have a National debt of 194%, Italy is over 100%. The US national debt is close to 71% of GDP. [See other countries Debt] . Also the UK has had much higher National debt e.g. after second world war is was over 150% of GDP.
National Debt and Financial Bailout
The Nationalisation of Bradford & Bingley and Government purchase of shares in major banks like HBOS will cause even more borrowing. It is estimated National debt will could rise close to 100% of GDP by 2012
It is way above the government’s sustainable investment rule of 40% maximum. However, the debt is different in the sense that the government has a reasonable chance of getting, at least, some of its money back. It is different to say borrowing to pay pensions.
What is the Real Level of UK National Debt?
However, it is argued that UK’s national debt is actually a lot higher. This is because national debt should include pension contributions and private finance initiatives PFI which the government are obliged to pay.
The Centre for Policy Studies (at end of 2008) argues that the real national debt is actually £1,340 billion, which is 103.5 per cent of GDP. This figure includes all the public sector pension liabilities such as pensions, and Private Finance Initiative contracts e.t.c (Northern Rock liabilities).
- However, these pension liabilities are not things the government are actually spending now. Therefore, there is no need to borrow for them yet. It is more of a guide to future public sector debt. I don’t accept the fact that future pension liabilities should be counted as public sector debt. In 2006, the Statistics Office did change calculations to include some PFI into public sector debt figures [pdf - Treasury.gov.uk]
- However, it is a sign that it will be difficult to improve finances in the future.
Another problem is that with the financial crisis, the government have added an extra £500bn of potential liabilities. Note: the Government has offered to back mortgage securities. They are unlikely to spend this money. But, in theory the government could be liable for extra debts of upto £500bn. If we include this bailout package as a contingent liability National debt would be well over 100% of GDP.
Forecast for National Debt
Source: HM Treasury – may prove to be overly optimistic
Problems of National Debt
- Interest Payments. The cost of paying interest on the government’s debt is very high. In 2008 Debt interest payments will be £31 billion a year (est 2.5% of GDP). In 2009, they will be £35 billion (similar to defence budget). Public sector debt interest payments could be be the 4th highest department after social security, health and education.
- Higher Taxes in the future.
- Crowding out of private sector investment / spending
- The debt problem will only get worse as an ageing population places greater strain on the UK’s pension liabilities. (demographic time bomb)
- Negative impact on Exchange Rate (link)
See also:
- Should We worry about National Debt?
- US National Debt
- Books on Debt at Amazon.co.uk
- What went wrong with US economy?
- Problem of Personal Debt in the UK
- How is National Debt financed?
- Public Debt at the Office of national Statistics
History of National Debt
national debt as % of GDP: Source: no 10.gov.uk
National Debt since 1900
47 comments ↓
I would like to say thank you for the revision guide they have been a great help in simplifying economics.. i have been looking for something like this for two years and finally found it a month before my exam.. life saver.
The interest is paid i presume, to the bank of england that lends the money to our government. If this is correct and i’m sure that it is, why have successive governments(this is a rhetorical question by the way) allowed our currency to be controlled by private banking elites without as much as admitting this to the public and asking for the support to fight and win back control over the currency. Much like the american presidents andrew jackson and abraham lincoln did.Forget the big brother control grid, at least for now because the banking system IS the biggest tyranny we face today.
[...] to a comment on UK National Debt, “The interest is paid i presume, to the bank of england that lends the money to our [...]
[...] UK National Debt [...]
[...] National Debt in the UK is high at 40% of GDP £535bn. However, you could argue comparatively it is not too bad. National Debt has been much higher e.g. last recession, it reached over 45% of GDP National Debt in European countries like Italy is over 100%. See: National Debt statistics [...]
[...] also: UK National Debt [...]
[...] Official national debt is £512bn. The Centre for Policy Studies says that if Northern Rock liabilities and state pension liabilities (they’re taking money to pay into the state pension, it should be reasonable to expect it to be paid out) are added to the official figure then it’s more like £1.3 trillion or 103.5% of GDP. Add this half a trillion on top and national debt is more like £1.8 trillion. Count the zeroes – 1,800,000,000,000. That’s 180% of GDP, 22% higher than Japan at the height of recession when banks were failing every few days and they were knocking zeroes off the Yen every couple of months. [...]
[...] UK National Debt continues to grow. Next year, many are now forecasting a public sector net cash requirement of [...]
[...] UK National Debt 43% of GDP (UK) [...]
I understand that the UK national debt is 1.6 trillion maybe to rise to 2 trillion. Is this correct? and to whom do we owe all of this
[...] UK national Debt is currently just over 610 billion. See (UK National debt) (This figures includes the recent cost of the Northern Rock [...]
why is our currancy falling due to the fact that we owe 700 billion in national debt ??, the USA has accumilated over 59 trillion dollars of goverment liabilities (thats 500,000 + per every single household) and yet the US dollar is stable ??????????????????
The top civilized governments of this world are ALL in
big DEBT problems. The G8 should meet to revise the
old system using john maynard keynes and britton woods agreement or post WWII to rebuild the govs of
Europe and devote 50% of the World Bank and Internatl
Monetary Funds Projects to G8 gov needs currently or
stop giving it ALL away to fourth and fifth world govs.
Projects undone by USA,UK,France,Russia,Germany,Japan,China,Canada,Spain,Italy,Iraq,Mexico,Poland and probably six more majors
should now be invested into by offshore bank trading regimes with Billion Dollar Tranches to aid NOW developing countrys as well. Their treasurys can’t fund
their negleted hospitals,welfare issues,roads,school
buildings,new sources of energy,new hybrid autos,global warming filters for coal and fossel fuels
power plants etc. THEN OUR GOVS can concentrate on
paying off our debts EARLIER and the dollar should soar
as the ORIGINAL BENCHMARK as intended by Britton
Woods and top 25 Bank Trading Programs. Please check
boulat.com for more specific info on these programs and
how they work. Thanks very much. Also…concerning our
G8 taxes which is a thorny issue of course…our govs should invest in tranches to the Worldwide Bank Trading
Programs run by the US Fed Reserve and major world
banks and the IMF and World Bank so that the original
one dollar of revenue in our treasury would summate
at the end of one year to 10 up to 15 dollars return on
TAX INVESTED FUNDS to help pay off Treasury Issues
of our mutual World Govs. Make your money on the
ten year advancing dollar against lesser currencys while
your “tax man” is at it HUH? Keep doing that until we
ALL RISE ABOVE THIS DEBT DEBACLE…HURRAH! Thanks
from J Johnston…PS The Isle of Man, Gibraltar and the
Isle of Curacao have banks to help us do this today!
the usa in answer to your question are stable as it is due to the trade of oil being in dollars. as soon as new technology for energy or the change in the currency used for oil happens, the usa will crumble unless they sort out the debt.
and john thats interesting but i for certain would not trust the US feds with my money, let alone the worlds
[...] would be interesting if the BBC added a chart for the UK national debt. There is some information here and here but I would like to see a long term table [...]
Re comment #2 by Simon Lomax: “The interest is paid i presume, to the bank of england that lends the money to our government. If this is correct and i’m sure that it is, why have successive governments(this is a rhetorical question by the way) allowed our currency to be controlled by private banking elites without as much as admitting this to the public and asking for the support to fight and win back control over the currency. Much like the american presidents andrew jackson and abraham lincoln did.Forget the big brother control grid, at least for now because the banking system IS the biggest tyranny we face today.” – Simon raises an important question which nobody seems to clarify. Is it true that citizens are paying huge interest payments to private bankers on “loaned money” which has been created out of nothing? If so, why don’t we nationalise the national debt, and pay it off with the amounts that apparently are being paid to private bankers?
[...] Current Public sector net Debt [...]
If we get interest rates to stay at zero percent, this will greatly enhance the servicing of national debt. For instance we woudl completely avoid £30b+ in interest for 2009
It can be done as Japan has had zero interest adn USA is close to it already. Everybody benefits excepts savers ( and they can find smarter ways of investing ).
Can you explain the difference between gross and net national debt?
We should go to 0% interest as the country in the long run will only benefit and we will become a stronger and better financial force in the long run.
[...] I wonder what the yearly interest on that is. Think i’ve found the answer to my question UK National Debt | Economics Blog [...]
[...] UK National debt [...]
[...] 3 http://www.economicshelp.org/blog/uk-economy/uk-national-debt/ [...]
In my opinion, irresponsible lending, combined with over materialistic spending has contributed to this huge problem we see right now. Those graphs are very telling of the state of public excess.
Luckily the FSA are going to start heavily regulating the lenders to help get the economy out of this hole.
[...] National debt in the UK [...]
[...] National debt as a percentage of GDP, including the cost of stabilising the banking system, will increase from [...]
[...] indebtedness is not the worst in Europe, and is actually not the worst we’ve ever endured. It’s quite a lot smaller than the debt we ran up during the second world war – and somehow we recovered from [...]
@Yusuf Husein – I completely agree, interest rates should be reduced, it may help to stabilise some of our more volatile industries.
@Debt Management Tips – It is funny you should bring up this point, I had a conversation with a friend today about the whole Irresponsible Lending vs Consumer Overspend debate and in the end we both agreed that on the whole it was the lenders responsibility to ensure that credit and credit limits were appropriate.
I’m glad the FSA are going to step in and place some restrictions on lenders. There are so many rogue firms out there being irresponsible in their approach to lending.
The company “Brighthouse” in the news right now is a perfect example of a company that should not be allowed to operate.
Interesting article, just shows what a mess our current financial situation really is.
All very interesting. Although I’m not sure what bonds, gilts and treasury bills actually represent. Are they the UK’s potential GDP that will be earned in the future? – i.e. the potential to pay back the debt. Is there some sort of guarantee, or do lenders just give over their money with an element of risk? Also, how by selling bonds, gilts etc and increasing money supply, and further increasing it by then applying fractional-reserve banking on this new money, is inflation unavoidable, and that an increase in National Output is the only realistic factor (in the equation MV=PY) that will limit inflation and more importantly pay the original loan and the interest? How is the interest paid without borrowing more money? How did the UK decrease debt in the past?
I read recently (Money Matters, Alastair Sawday publishing 2009) that we are still paying for the ransom of Richard the Lionheart (1157-1199). Can anyone here refute this allegation?
The national debt is going beyond a joke even worse google is owned by someone in america and its the biggest shopping window i the world and they are putting all the .coms above uk businesses, why google why?
[...] Question: I would like to know more on the issue of who exactly benefits from the UK national debt that my great grandchildren are going to be [...]
[...] on June 2009, UK public sector debt stood at £798.8 billion (or 56.6% of GDP) – UK National Debt [...]
In answer to the questions answering who the government pays interest to…
The government issues government bonds or guilt edged stock which normally pays a fixed percentage of the value of the bond each year to the bond owner. The person who buys the bond gives the government the face value of the bond and in return the government gives the bondholder the fixed percentage of the face value each year until it buys the bond back which normally only occurs with fixed term bonds (eg. 5, 10, 25, 50, 100 etc year bonds although I don’t know if we still issue them).
I hope this helps….
people have to know that what is the yearly condition for debt of national sector and private sector. Here i am thankful for sharing helpful information.
[...] UK ‘Public Debt’ is now approximately £798 billion (June 2009 – http://www.economicshelp.org/blog/uk-economy/uk-national-debt/), and according to the media because of this all the main parties agree that the public sector (our [...]
The email you sent out on 15/16th Sept 2009 on the subject of government borrowing says “The irony is that many people in the UK who have private pensions indirectly have lent money to the government”. Too right. I would go a lot further: I suggest that behind this “irony” there is hornets’ nest, as follows.
Governments borrow to a large extent because the politicians in charge think they can make themselves popular by sparing voters the pain of additional tax. But as you rightly point out, this policy simply results in voters lending instead of paying taxes. The reduced personal consumption by voters is pretty much the same in each case.
Incidentally, this is a classic example of one of the most common mistakes in economics: the mistake of assuming that micro economic laws work at the macroeconomic level. To illustrate, if I PERSONALLY borrow to buy a new car, I can delay the pain of working and saving in order to get the cash to buy the car. But this does not work at the macro economic level.
I’ve actually set up a blog, which claims that government borrowing is largely a farce. I dont think there should be NO government borrowing, because if governments and/or central banks can alter interest rates and the total amount they borrow, this is a useful regulatory tool. See: http://govtdebt.blogspot.com/
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.
It looks like our nation’s all too brief summer of credit looks set to end and the Orwellian social conditions and dismantled welfare state look set to return.
[...] 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. [...]
I’d like to querie the above first para: “The UK national debt is the total amount of money the British government owes to the private sector.”
According to a “City Wire” site, nearly all the increased so called “national debt” in recent months is debt owed by the government to the Bank Of England (on account of the latter’s generous decision to print loads of money and give it to government). This so called “debt” (owed effectively by one government entity to another) is not a debt in any normal meaning of the word.
See the following City Wire site, second graph or “bar chart” and the para just above it: http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=352818
thanks Ralph, Yes, in recent months things have been changing quite significantly. I will update post
What an insight into the nation debt. Great article, so informative and thanks for covering this.
[...] a writer on the blog ‘Economics help’ points out; From National Debt: What appears tragic from this is that Britain’s cultural history can be read off from the 1900 [...]
Thank you for this article, it is are to find this kind of info in such an easy to read format.
I have one question however, who is all this money owed to? Who is so rich that they can lend countries so much money?
It the Banking system that has failed because of very loose lending system. Instead of excessive borrowing and provide the stimulus. The government should directly control most of the Bank and public sector unit , create more employment. The government should also put a cap on the exposure on all public fund i.e, the safeguard the pension fund. Instead of talking of liberalisation, its time to talk about protectionism.
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