Is the uk's debt underestimated? Do you know the debt and its costs?
Some of you may have heard of the recent headlines ‘Government borrowing is at an 11-year low’. However, do we as individual members of the public really know the extent of our debt and what it costs us annually. I believe this is a topic of huge importance which is incredibly underestimated. If you mention debt in a conversation, people are aware we sit on a debt however not the sheer size of it.
The total UK government debt as of the first quarter of 2018 is £1.78 trillion which is a huge 86.58% of total GDP. Now with this great debt, comes a great problem…In the Financial year 2016/2017 we spent £39.4 billion on interest alone and that is not repayments but pure interest. That equated to 5.5% of our annual costs, and to put that in perspective, we spent £37 billion on defence, £11.3 billion on the environment and £4.7 billion on contributions to the EU.
Every month we borrow more than what we can afford and putting our country constantly in more debt and adding to the huge interest bill we get each year making it even harder to pay off the debt. We are very much living over our means because, to put it bluntly, we spend more than we take in. In the year 2017/2018 we borrowed £42.6 billion which was better then the OBR forecast of £45.2 billion. However, this is still a huge figure which will add to the amount of interest we will have to pay next year. Now let’s imagine that we didn’t have any debt and, therefore, didn’t have that £40billion annual interest bill waiting for us. If this was the case, we would be in a much better position to work towards a completely debt free government. The different between the debt interest paid and the yearly borrowing is only a few billion.
Debt interest is the 5th biggest cost for public sector expenditure. This is the breakdown (Financial year 2016/2017) of the top 6 public sector expenditures (what all your taxes were spent on).
Welfare - £172.7 billion – 24.3%
Health - £144.3 billion – 20.3%
State pension - £91.6 billion – 12.9%
Education - £87.2 billion – 12.3%
National debt interest - £39.4 billion – 5.5%
Defence - £37 billion – 5.2%
People are very quick to judge cuts on spending. However, when we are borrowing over £40 billion a year due to overspending on budget’s then we can start to see why the Government is cutting spending. There’s two ways to look at this. Firstly, the Government raises taxes to pay the excess or cut spending to cut the excess and that is where the great political debate comes in. Some people may be surprised by the above figures, have a think, in what order or % would you say the top 6 should come under.
Would you cut spending on one, increase on another?
Would you raise taxes and cut spending?
Would you try to concentrate on paying off the debt to be rid of the debt interest?
Now we are not the only one’s… this isn’t a British problem. Japan tops the mark at a whopping 253% of their GDP. The United States has 105.4%. We sit a few percent above the European Union. However, we sit under 23 other countries who have a higher level of debt compared to GDP.
So, who owns this UK debt? Well most of the debt is made up of gilts (Government Liability in sterling). Most of the debt is owned by funds, pensions and over investors. However, over a ¼ of our debt is owned by overseas investors. People invest in these gilts as it is considered safe because the UK has never defaulted on a debt payment. The debt is organised and auctioned off by the Debt Management office.
I hope this raises a bit more awareness of level of debt and its cost to our Great Britain.
James Hodgson-Jones is a student at The University of Salford and the Chairman of The University of Salford Conservative Society.