Readers Comment It is shocking to me that revenues from all my future income tax and even my young children’s future tax payments have already been committed by our national debt. If it is not some kind of nefarious carve-up, why would the UK wage 2 unnecessary wars costing billions when we do not have the money.
debt is a burden on the future, a gamble on increasing growth and prosperity how can that mesh with a rapidly expanding population on a small delicate planet with finite resources?
We are borrowing the money for these wars, and paying interest to private entities !!
Am I right saying that the BofE sells and buys bonds when it wants more cash?
- If the government needs to borrow money then the Bank of England sells government-backed bonds to the private sector. This is how the government raises revenue. When the government has a budget surplus it can buy back more bonds than it sells.
- Government borrowing does create a burden on the future Future Taxpayers will have to pay debt interest plus the debt. (Interestingly, the current payments on debt interest payments are equivalent to total spending on defence.)
- The Benefit of borrowing now is that current taxpayers benefit from lower tax rates (than they should be) and/or higher government spending. Borrowing can be beneficial if it is invested in improving long term productive capacity of the economy.
- The problem is that reducing national debt now would exacerbate the economic downturn. e.g. higher taxes would reduce consumer spending and lead to slower growth.
- The government predicted (hoped) continual economic growth would keep national debt manageable, but, the economic slowdown means National debt will increase by more than they expected.
- You could argue the government have wasted the last 15 years of economic growth. This would have been a good time to keep reducing national debt as a % of GDP, rather than allow it to rise. (from 29% of GDP in 2003 to 40% now)
- The military operations in Iraq and Afghanistan are certainly expensive, but as a % of GDP, they are relatively small. The whole defence budget accounts for (roughly) 3% of GDP or £31 billion.
- 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
- The real problem for National Debt in the UK and other developed countries is the demographic time bomb. The UK has an ageing population. This means more old people to claim pensions, but not pay income tax. This ageing population will squeeze future government spending and place greater strains on government borrowing in the future.
- Some argue National Debt looks a lot worse if you include pension commitments. (It is even worse if you include the liability of Northern Rock.