Jubilee Debt Campaign tackles 'myths' about government debt

By agency reporter
November 14, 2017

The UK government is paying virtually the lowest amount of interest on its debt in recorded history, as a proportion of GDP. Of the payments it is making, most are to people and institutions in the UK, with just 25 per cent of UK government debt owed outside the country. In contrast, 24 per cent of the UK government’s debt is owed to the UK government itself, via the Bank of England.

These facts are part of a new briefingTen key facts about debt in the UK, released by the Jubilee Debt Campaign ahead of the budget on 22 November 2017, which aims to tackle the widespread myths about the scale and risks of UK government debt and highlight the more significant debt-related risks facing the UK economy.

UK government debt presents a relatively low risk because the majority is owed in pounds, a currency the government controls, to institutions and actors in the UK. However, the briefing points to major concerns over rising unsecured personal debt levels, the UK’s economic deficit with the rest of the world, and economy’s exposure to external financial shocks.

The UK economy as a whole – the private and public sector – has the largest deficit with the rest of the world of any of the IMF’s list of 36 rich countries. The latest IMF figures show the UK’s current account deficit as 4.4 per cent of GDP, compared to 2.6 per cent for the US, and 1.1 per cent for France. Japan and Germany have surpluses of 3.9 per cent and 8.5 per cent of GDP.

Tim Jones, economist at the Jubilee Debt Campaign said, “Debt crises around the world, from Ghana to Greece, have been caused by debts owed outside a country. Yet UK government debts are primarily owed to people in the UK, with a quarter owed to the government itself through the Bank of England. The overall amount the government spends on interest payments is also at virtually the lowest level since records began.

“Of much bigger concern is the fact that the UK is by far the most exposed to a global financial crisis of any major economy. Furthermore, despite the fall in the pound following the Brexit vote, the UK still has the largest deficit with the rest of the world of any rich country. Our 10 key facts tackle the widespread myths about the scale and risks of government debt, and show the real risks facing the UK economy are from high and rising private indebtedness.”

The UK’s finance sector is the most exposed to a global financial crisis of any G7 economy. The ONS recently revised its estimate of assets and liabilities, which led to a change from a surplus of £470 billion (24 per cent of GDP) to a deficit of £22 billion (one per cent of GDP). This re-estimate led to headlines of 'Britain’s missing £490 billion.' However, the real problem is not whether there is a small deficit or surplus, but the huge scale of the UK’s external assets and liabilities (564 per cent and 565 per cent of GDP respectively). The next highest is France (286 per cent and 301 per cent of GDP). A 20 per cent fall in the value of external assets held by the UK would leave the country with net liabilities of 114 per cent of GDP.

The ten key facts in the briefing are:

  1. A quarter of UK government debt is owed to the UK government itself,
  2. Three-quarters of UK government debt is owed to people and institutions in the UK
  3. Of G7 economies, only Germany has a lower government debt (as a proportion of GDP) than the UK
  4. The UK government can currently borrow at the cheapest interest rates in its history
  5. The UK government is paying virtually the lowest amount of interest on its debt in recorded history, as a proportion of GDP
  6. UK government tax revenue (as a proportion of GDP) is the third lowest of G7 countries, and well behind other European countries
  7. The debt of the UK’s private sector is more than four times as big as that of the government
  8. Unsecured personal debt in the UK is rising rapidly
  9. The UK economy has the largest deficit with the rest of the world of any rich country
  10. The UK’s finance sector is the most exposed to a crisis of any G7 economy

Read the briefing, Ten key facts about debt in the UK here

* Jubilee Debt Campaign http://jubileedebt.org.uk/

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