Who does the UK owe money to?

Readers Question: Who exactly is the UK is in Debt to? Please can you simplify and explain?

There are two types of debt:

  1. Government debt (Public sector debt / National debt) – The money the government has borrowed, primarily from the private sector.
  2. External debt. Liabilities the UK owe to the rest of the world – this is both private sector and public sector.

Who does the government borrow from?

The UK government borrows mainly from

  • UK pension funds/insurance companies (29%)
  • Private corporations / other financial institutions
  • UK building societies. (e.g. building societies buy government gilts to invest their savings to get a decent return.)
  • UK Banks
  • UK Private investors
  • Foreign investors (foreign banks and foreign investment firms (2015 approx 25%)
  • Bank of England Asset Purchase facility (Quantitative easing)


Source: DMO


  • A pension fund will be interested in purchasing UK government gilts to gain a secure return on long-term investment.
  • A charity/firm with excess savings may purchase government gilts to get a good interest rate while it decides how to use the money. Retained profit from UK companies has increased in recent years, and corporations have become a bigger buyer of UK gilts.
  • A private individual may purchase gilts as part of a balanced portfolio of investment.

We owe money to ourselves

One feature of UK government borrowing is that 75% of the debt we are borrowing from UK citizens and UK institutions. It is like a transfer of pension funds to the government.

Foreign holdings of UK Debt

How much does the government owe to foreign nationals?


UK Debt held by overseas investors (source: DMO)

Foreign holdings of UK debt can be seen at DMO – Gilt Market Data – Oversees holdings

In Q3 2015, 25.9% of UK debt was held by foreign investors. This is lower than the mid-2008 peak of 35% but also higher than previous decades.


The UK has a high percentage of long-term maturity gilts. This means that the government is not liable to repay the gilt for a longer period. This means it doesn’t have to reimburse gilt owners and resell gilts as frequently.

composition-uk-debtIndex-linked gilts have an interest related to the rate of inflation. Higher inflation will lead to higher interest payments.

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



See: UK External debts and assets


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


Video on UK Debt


6 thoughts on “Who does the UK owe money to?

  1. Really interesting Tejvan. There’s nothing about external debt in any of my books! Extra questions that come to mind:

    1. What are these assets and liabilities? Asset backed securities? bank issued bonds & shares?

    2. I guess it should be obvious, but why are the assets and liabilities so close? Is the banks running a tight balance sheet?

    1. Yes, I think they are things like asset backed securities / long term loans, bond shares. Because they tend to be asset backed, that is why they tend to be so close. However, I’m not an expert on external liabilities and assets.

  2. Is this the complete picture?
    It is regularly reported that so-and-so pension fund has a black hole and may require a government bailout? There is a need to know precisely who are the creditors and were they involved in the 2008 collapse. Billions of pounds of investment have been lost as a result of qe and low interest rates. How is that woven into the picture?

  3. Thank you Tejvan, I’m not sure who thought up government bonds but they seem like a pretty selfish money grabbing way of making interest? Jx

  4. What would happen if the Bank of England purchased all the external debt with issued currency and then recreate the agreements with all the people/institutions that owed the money at 0% interest?

  5. Not satisfied with what has been put down. There is more to it than that, The money we owe is very much more than has come via stated , During a war money would not have been invested as much as we are led to believe ,

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