• Amount of interest being paid on government debt is at virtually the lowest level since records began
• But the UK economy has the highest deficit with the rest of the world of any rich country, and is uniquely vulnerable to global financial shocks
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% of UK government debt owed outside the country. In contrast, 24% 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 briefing, released by the Jubilee Debt Campaign ahead of the budget on 22 November, 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 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% of GDP, compared to 2.6% for the US, and 1.1% for France. Japan and Germany have surpluses of 3.9% and 8.5% 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% of GDP) to a deficit of £22 billion (1% 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% and 565% of GDP respectively). The next highest is France (286% and 301% of GDP). A 20% fall in the value of external assets held by the UK would leave the country with net liabilities of 114% of GDP.
The ten key facts in the briefing are:
- A quarter of UK government debt is owed to the UK government itself,
- Three-quarters of UK government debt is owed to people and institutions in the UK
- Of G7 economies, only Germany has a lower government debt (as a proportion of GDP) than the UK
- The UK government can currently borrow at the cheapest interest rates in its history
- The UK government is paying virtually the lowest amount of interest on its debt in recorded history, as a proportion of GDP
- UK government tax revenue (as a proportion of GDP) is the third lowest of G7 countries, and well behind other European countries
- The debt of the UK’s private sector is more than four times as big as that of the government
- Unsecured personal debt in the UK is rising rapidly
- The UK economy has the largest deficit with the rest of the world of any rich country
- The UK’s finance sector is the most exposed to a crisis of any G7 economy