£2,228,300,000,000 and falling – the UK’s national debt

Public sector net debt when Labour came to power in 1997 was running at 40.5% of our total national income. In the early days of Labour, following Conservative spending plans, they took it down to 30.4% by 2001-2. They used to say wisely that they wanted to spend more of the tax revenue on services for people and less on debt interest. Thereafter, they greatly increased spending, and later acquired holdings in large banks. By the time they left office, in 2009-10, national debt had reached 151.7% of our national income.

At the end of last year this figure had fallen to 134.5% of GDP. Reductions in other public sector liabilities, primarily those held by the banks in public ownership, and the increase in nominal GDP, more than offset the impact of increased borrowing by the central government. Sale of the banks will make a further large difference when that is accomplished. The four years 2010-2013 have seen the public sector banking liabilities cut by £78bn.

These figures do not include the value of future pension liabilities under the state pension scheme, though the government has published separate numbers for this for those interested. Nor are these larger numbers, provided by this government, in common use despite many people requesting more accurate overall statements of government indebtedness. Most commentators and politicians still concentrate on the narrower definition of public sector debt which excludes the banks and trading businesses in the public sector. Here in 2005 net debt was just £475bn- – on both definitions as the state owned no banks. By 2010 the narrower definiton of debt had reached £984bn, hitting £1254 bn by the end of 2013. This is 75.7% of GDP, compared to the 30.4% in 2001-2.

Some contributors to this site persist in saying the total level of debt does not matter. I disagree. If the state owes £1250bn and has to refinance this, being unable to repay it, it is vulnerable to rising interest rates. If over the next decade the average cost of state borrowing rose by just 2%, that means an extra £25bn of public spending every year on interest charges. That will require either £25bn of spending cuts or £25bn of extra tax revenue. That is why controlling the debt and deficit matters. Getting rid of more of the banking risk is an important part of this process. Even the UK state is stretched by the size of RBS, and the potential it still has to lose money. The sooner that risk is reduced and removed from the national balance sheet, the better.


Today the Chief Secretary to the Treasury has explained how Labour’s proposed rules for the next Parliament should they be in government would allow them to borrow substantially more than the Coalition proposals over the next Parliament. Labour contests the £166bn figure of extra borrowing  which assumes they use all their available flexibility to 2021, , but has not come up with a revised figure of their own. So far interviewers have not pinned down how much extra they would be likely to borrow for capital projects.

(The figures come from December 2013 Statistical Bulletin Public Sector Finances ONS)


  1. Mark B
    January 31, 2014

    £2,228,300,000,000 / 65m People = 34,281.54p

    That is how much each of us owes. And that is not including the PFI debt, which was started by the Conservatives and abused by New Labour. The The Public Pensions deficit, which ‘I believe’ stands at £50 Trillion (citation needed). And all the on going contributions such as aid, and on top of that, annual running costs such as defence, NHS, Education etc.

    I have just looked at Mr. Piggy-bank. He has a ‘very’ worried look on his face ! 🙁

    1. lifelogic
      January 31, 2014

      Public sector pensions liabilities cannot be as high as £50T more like 1 trillion surely?

      Anyway the solution is simple an 80% tax on public sector pensions over say £20K PA and 95% on MPs’ ones as they caused the mess. Difficult to get through parliament though.

      1. nick
        January 31, 2014

        Except that the liabilities are 7.1 trillion



        Reply Thank you for proving my point that the UK government has kept the promise to publish full financial details of the state’s debts and other liabilities. I have been meaning to look it out again for all the deniers on this site that this has happened as promised. As this shows, the full unfunded pension liabilities are costed at £4.7 trillion. Everyone can add this figure into the state and state banking debts I have highlighted if they wish.

        1. petermartin2001
          February 1, 2014

          I agree that future pension payments could be a problem but it doesn’t help to think in terms of ‘funded’ and ‘unfunded’.

          If the State saves up its £ or $ then it is effectively just saving up its own IOUs and it doesn’t make any more sense for it to do that than it would for anyone else.

          If just a few people save for their retirement then there is no real problem but if lots of people save now, that would deflationary, and if they try to spend it all at the same time some time in the future that would be just as inflationary as if the money were printed afresh.

          Another way to look at the problem is to consider the available resources there will be in the future to support an ageing population. So the problem isn’t just about money. Its what that money will be able to buy in the future. If everyone has retired and no-one is working it won’t be able to buy anything at all!

          So, regardless of the amount of saving, the best preparation for the future is to do what we can to ensure that the future economy is in good shape. We’ll all rely on those who are currently very young. Its important that they should be able to develop their skills in a way they can only do if they are in a reasonably good well paying job. If they spend too much time on the dole they won’t be much use to themselves or us old folk when we need them!

          Reply More nonsense. Much of the funded asset base of public sector pension schemes is represented by claims on companies, foreign assets etc. These are tangible assets that can be realised.

          1. Ken Buchanan
            February 2, 2014

            Is this an example of the Paradox of Thrift?
            I can see what you are getting at. I’m not sure you are right but John is being too dismissive by saying “more nonsense”

        2. zorro
          February 1, 2014

          As you say though John, the debts are as stated (public and private). The pensions, however, are potential liabilities over an amount of time which will depend on factors such as lifespan and many other things, such as tax revenues, growth etc…. To be sure, a liability is not a debt until it becomes technically payable.


          1. zorro
            February 1, 2014

            And, for the record, I owe nothing to anybody….. And certainly not on average £34,281.54…… The state owes money which it can try and extract from its taxpayers unless it prefers to print/QE.


          2. petermartin2001
            February 2, 2014


            You are right. Unless you have an outstanding mortgage or car debt, or whatever, you won’t owe anything to anyone.

            Yes, you’re probably responsible, just like everyone else, for part of that £34,281.54. If , say, you’ve bought a Japanese car then that alone would probably be £10,000 or so.

            But you’ll have had your car and the Japanese car company would have been paid in full. So what’s the problem? Everyone’s happy. Someday the Japanese holders of £10k worth of treasury bonds will decide to cash them in and spend the proceeds.

            They may decide to spend them with a company you work for and you’ll end up getting your £10k back as salary. The UK ‘debt’ will be smaller, and everyone will be even happier.

    2. nick
      January 31, 2014

      PFI is trivial.

      What’s really horrendous are the pension debts. 7.1 trillion and no assets.

      Annual rate of increase, 734 bn a year. [Total tax comes to 600]

  2. Mike Stallard
    January 31, 2014

    Mr Redwood you are one of the very few commentators who actually mentions the debt. Well written.
    I must own up to the fact that I have been looking at the debt as one huge, burgeoning figure (with accompanying interest of course, with accompanying demands on low interest rates, with accompanying threat of Zimbabwe style inflation, with drastic effects on all the banks too).
    When you actually compare it, fairly, with the GDP, it does actually make a lot more sense. If you can pay a debt off, then that is very different from just sitting back and hoping everything is OK.

  3. Narrow shoulders
    January 31, 2014

    Further evidence that Government is too large and sections of society at the upper and lower ends of the income scale have become too dependant upon taxpayer largesse.

    1. Narrow shoulders
      January 31, 2014

      The level of this debt along with increasing pension liabilities are two of the oft quoted reaaons for the need to increase population to increase GDP which in turn reduces the debt as a ratio of that measure.

      Using extra bodies to increase GDP does not automatically increase GDP per capita hence the majority of us having declining living standards.

      Still good to see Parliament’s main concerns yesterday.

      1. Nick
        January 31, 2014

        The level of this debt along with increasing pension liabilities are two of the oft quoted reaaons for the need to increase population to increase GDP which in turn reduces the debt as a ratio of that measure.


        Doesn’t work that way.


        Page 3 and Page 4. Over 5 years it increased at 734 bn a year.

        Any number of migrants coming in doesn’t make the ratio to population.

        ie. Increase the size of denominator, when the numerator is going up at 734 bn doesn’t affect the consequences.

  4. Lifelogic
    January 31, 2014

    Indeed and (named bank ed) is still damaging the economy by demand perfectly sound loans back or just charging far too much for them. Long term 30 year government borrowing rates heading towards 4% and 1o year heading towards 3%.

    The good news is there is so much scope to save money in the state sector. So much pointless expenditure like HS2, renewables, pointless wars ……..

    Even today the BBC is crowing about the fact that roof top PV installations have hit 500,000 each and every one pointless and needing tax subsidy of order perhaps £20 Billion. To the BBC it paid for computers in a school with the money they saved! In fact it just means more taxes, higher electricity costs and a more expensive building to build and maintain.

    Just fire the 50% of the state sector that does nothing of any use. Start perhaps with all the people at the environment agency. They seem to think dealing with flooding is all about PR, warnings, appearing on TV talking rubbish and endless expensive telephone line recorded messages. This rather than a bit of dredging, river bank repair, a few dams, sandbanks, flood planes and some simple river defenses and proper flows.

    Listening to Tim Yeo and his energy and climate change committee questioning Prof. Lindzen, Atmospheric Physicist, I am overcome by the fact that most questioners cannot even frame questions that make much sense, nor understand the perfectly simple answers. They seem to be nearly all numerically & scientifically illiterate with perhaps the sole exception of Peter Lilley.

    The session would have been far more use it they had just left Prof Lindzen to explain things as a lecture and not asked their silly and poorly worded questions wasting his time distracting him.

    Wasting £billions on trying to reduce c02 in the UK alone clearly can have virtually no positive effect anyway even if you belief the carbon religion and all the evidence is that up to about 2C hotter is a net economic benefit anyway.

    Certainly wasting billions on very expensive and intermittent “renewables” is clearly bonkers even if you have caught the religion.

    1. nick
      January 31, 2014

      I’ll give you another. I FOI’d Vince Cables department as to how many jobs they had created. It was 3.

      That’s for 20 bn a year.

    2. uanime5
      January 31, 2014

      The session would have been far more use it they had just left Prof Lindzen to explain things as a lecture and not asked their silly and poorly worded questions wasting his time distracting him.

      You mean asking him why his claims are contrary to all the scientific evidence.

      1. Hope
        February 2, 2014


  5. Ian Scott
    January 31, 2014

    The debt – more importantly the interest payments on the debt – are important. That’s why it’s such a shame this gov. has presided over the lamest, slowest recovery possible made so by it’s own actions.

    We would have been further down the road to deficit reduction had the chancellor been sent to the Maldives for the last 3 1/2 years and left to work on his tan instead of holding back growth and blaming anyone without the wherewithal to fight back.

  6. David in Kent
    January 31, 2014

    It seems to me entirely sensible for the state to borrow money cheaply to invest in income-earning assets where the amount it pays in interest is lower that the income the asset will earn (when adjusted for the delay). Right now money is cheap but we can surely expect it to become more expensive.
    1. I’m not convinced that all Brown’s investments have been profitable.
    2. We need to start reducing debt now as JR says.

    1. nick
      January 31, 2014

      So they invested trillions in the welfare system to make poverty history. End result? More poverty, plus another 7,100 bn debt for the pensions.

  7. Hope
    January 31, 2014

    Let’s get to it, where is the 80/20 split in spending cuts and tax rises? Where is the bonfire of quangos, we have just see again how useless these over expensive quangos are like the Environment Agency. One of the biggest in the worlda no with one of the biggest budgets. What have they actually achieved? Try to correct the EU competence for food so we do not have horse meat instead of beef in our diets? The sort of thing Cameron pledged to fight heart and soul to stay in, when do you and the other Tory MPs stop believing him? Normal Tory supporters have given up.

    1. JoeSoap
      January 31, 2014

      And THAT is what we need to focus on in 2015 when we are being told how great things will be if the Tories are re-elected.

  8. alan jutson
    January 31, 2014

    Always think that the fully written out numbers show the true scale of anything.

    Just as I always think a simple graph shows a clear trend better than anything else, because you immediately get a sense of scale from past – present.

    Could never understand why 6 months after being in office (and then knowing the true state of UK Finances) the government did not broadcast on TV a state of the finances message where all of this could have been outlined in very simple terms for all to see.

    Instead we had spin, after spin, after spin, with absolutely no substance, with many believing (supported by media reports) there had been huge cuts in expenditure which would resolve our problems, only to find out 4 years later that spending and debt is still growing.

    An opportunity lost, because it would seem most people still think there have been spending cuts !!

    1. Denis Cooper
      January 31, 2014

      “Could never understand why 6 months after being in office (and then knowing the true state of UK Finances) the government did not broadcast on TV a state of the finances message where all of this could have been outlined in very simple terms for all to see.”

      I could never understand why Osborne and other senior Tories did not do that kind of thing during 2009 so that by polling day electors fully understood just how bad the economic and financial mismanagement of the Labour government had been.

    2. Feodor
      February 1, 2014

      “An opportunity lost, because it would seem most people still think there have been spending cuts !!”

      Public sector workers who have lost their jobs are not wrong to think there have been spending cuts–there have been. What is paradoxical, is that the government has simultaneously managed to decimate public services whilst making little impact on the debt. I believe this particular trick was pioneered in the 1980s. The basic ideas are summarised in a favourite of the Chancellor’s, Neo-Liberalism for Dummies, ch. 7.

      1. John Armour
        February 2, 2014

        I guess it is a paradox Feodor.

        If you want a bigger deficit, rein in debt.

        However, it’s also breaks one of the most rules in economics:

        “one person’s spending is another’s income”.

        The Labor government in Australia (on advice from a very smart Treasury boss) pumped billions into households in the early days of the GFC and kept the country out of recession. Real growth since has been around 13%.

        The new conservative government however thinks Australia’s net Debt/GDP at 12% is a “crisis” and is going to rein it in.

        I wonder what odds I’d get at Ladbrokes that Australia’s heading for a recession ?

      2. petermartin2001
        February 2, 2014

        What is paradoxical, is that the government has simultaneously managed to decimate public services whilst making little impact on the debt

        If fact it is highly predictable. The public debt is largely out of the governments control. It can control spending to some extent , and taxes to some extent but it can’t control everything else in the economy. You can’t just change one thing and expect everything else to be the same.

        What can we notice about countries which do have sustainable public sector surpluses? China, Norway, Germany.

        They all have export surpluses too! But is the balance of payments ever discussed by ministers in connection with the desire for a budget surplus? And if not, why not?

  9. alan jutson
    January 31, 2014

    Off topic John

    Most reports from yesterdays Commons debate suggest an absolute shambles.

    Can I ask, what was your take on the debate and how it was managed ?

  10. Mike Wilson
    January 31, 2014

    Over 2 trillion eh! Nice legacy for our children.

    Repaid at, say, 10 BILLION pounds a year (a large sum of money) – it will take over 200 years to pay back.

    We seem to have had one congenitally useless, profligate government after another. It took 60 years to pay back the Second World War debts. It will take 200 years to pay back the fact that we decided we could afford Diversity Coordinators on 50k a year.

    1. lojolondon
      January 31, 2014

      That puts into perspective the decision to spend £70 Billion on a railway line for the rich and privileged, that will damage jobs and businesses in the NE as people are pressured to commute to London.

    2. Nick
      January 31, 2014

      Except its not 2 trillion, its 9 trillion.

      John won’t tell you what they owe for pensions, and that is 7.1 trillion, rising at 734 bn a year.

      That will never be paid, and the effect of that is disasterous.

  11. oldtimer
    January 31, 2014

    This is a convincing reason not to be involved in any currency union with an independent Scotland – should the Scots vote for independence. It also demonstrates why the UK needs a decade or more of prudent housekeeping on the part of its political class and establishment. It also demonstrates the need for the introduction of policies which actually encourage wealth creation and remove policies and subsidies which promote inefficiency. Unfortunately the establishment`s track record does not inspire confidence that either will be realised. The daily doses of propaganda that emanate from the BBC seem calculated to frustrate those needs at every turn. It too is part of the problem.

  12. Andyvan
    January 31, 2014

    These appalling figures are just the tip of the iceberg. They assume that public accounts are remotely realistic which they are not. If the government were forced to use the same accounting standards that business use the debt would be even more terrifying than you’ve stated Mr Redwood. Why does a government run a deficit at all? It’s job, at most, should be running basic services financed entirely by tax receipts. What we have now is a gigantic nanny state that interferes, spies and controls it’s citizens lives and, apparently, uses them as collateral to borrow as much money as humanly possible. Why? Can we not run our own lives?

  13. John Eustace
    January 31, 2014

    Interesting definition of a falling debt when in fact the government borrowed another £96,000,000,000 year to date.
    From the Bulletin
    “For the financial year to date 2013/14, public sector net borrowing excluding temporary effects of financial interventions and also excluding the effects of the transfer of the Royal Mail Pension Plan and the transfers from the Bank of England Asset Purchase Facility Fund was £96.1 billion. This was £4.8 billion lower than the same period in 2012/13, when it was £100.9 billion”

    Not quite my idea of a breakthrough to financial stability.

  14. Brian Tomkinson
    January 31, 2014

    “JR: That is why controlling the debt and deficit matters.”
    I think by and large you are preaching to the converted here you need to address your comments to your Parliamentary colleagues.
    Just to remind you once again that your Chancellor (yes, a Conservative Chancellor) is still borrowing £2bn per week because your government is spending that much more than it collects in tax income. The pledge to eliminate the deficit was abandoned on taking office.

  15. Bert Young
    January 31, 2014

    Horrifying figures ! The reminder of just how big the debt is has to be a wake up call to the Scots . So far I have not seen any recognition of how the Scots will accept responsibility for their share were they to split ; I trust more will be said about this in the coming weeks . I am in full agreement that every effort must be made to bring debt down ; no party could ever hope to win an election based on increasing the burden ; the last few years have been difficult for all families and all want to see some glimmer of hope on the horizon .

  16. petermartin2001
    January 31, 2014

    Mr Redwood,

    Some contributors to this site persist in saying the total level of debt does not matter.

    Who is saying that? I would say that the government deficit would be in the same category, economically, as the the exchange rate of the £ sterling. In other words, it is what is is and shouldn’t be the focus of government manipulation. I wouldn’t say that either the deficit or the exchange rate ‘didn’t matter’ though. I believe you used to argue that government shouldn’t try to influence , except perhaps to smooth abrupt changes, the value of the £ sterling. So were you saying its value “didn’t matter”?

    The government budget has to be in deficit at present due to the desire of the private sector to net save and also buy more from abroad than its sells abroad. It’s a fundamental arithmetic relationship. To put the government account into surplus any government will have to stop all that. You can’t, in a free society tell the private sector what it can and can’t do with its money. If people in the UK want to buy BMW cars, wines from France, clothes and consumer electronics from China and all the other goodies people like to buy from overseas, then it would take a brave Government to tell them they couldn’t. Those goodies need to be paid for, and as the bills come in, money drains out of the economy to go overseas and pay for them. That money has to be replenished from somewhere. The private sector can draw down its savings or the government can run a budget deficit.

    The National debt, is the sum of those deficits over the years. It looks like a big scary number and it is scary if you don’t understand what it is. I will comment further later, if I am allowed.

    1. David Price
      January 31, 2014

      “The government budget has to be in deficit at present due to the desire of the private sector to net save and also buy more from abroad than its sells abroad.”

      Gosh, you mean it is all the fault of the nasty private sector and that neither the public sector nor its employees would ever dream of buying imported goods and services.

      1. petermartin2001
        February 1, 2014

        In a three sector analysis, government employees and all contractors would be counted as the private sector.
        But you are right, I’m sure the public sector does buy in imported goods and services too . Often there is no alternative. Some economists, who otherwise think along the sames lines as myself, would argue that imports are a good thing and would see nothing wrong with the Govt closing down, say, the DVLA in Swansea and shipping out all the work to India.
        I’m not sure I agree though. But, as you’ll know, that’s exactly what happens in the private sector if it saves a £.

        1. David Price
          February 2, 2014

          There is always an alternative and the outsourcing of activity is not a foregone outcome.

          In relatively few words you confirm so much of my perception of economists.

    2. miami.mode
      January 31, 2014


      The UK government has complete control of the National Debt (by its very name) as it is purely the difference between the money it collects and spends. At times it could be a surplus and not a debt.

      The International Debt is made up of millions of decisions by individuals every day as to whether they buy an article made in China , a wine produced in France, a runner bean grown in Kenya or perhaps a Euro or two on a holiday in the Eurozone etc etc. We pay in sterling and the seller accepts the prevailing exchange rate. The government can endeavour to alter our spending or make it difficult by amending rules and regulations but in a democracy has no direct control of how and where we spend our British Pounds. All it can do is influence exchange rates by its policies and actions.

      To fund the National Debt the government seeks cash from home or abroad through Gilt sales but this borrowing has to be repaid and it will be repaid in sterling. The lender from abroad will accept the prevailing exchange rate but if they feel the National Debt is getting too large for us to handle they will only lend to us at a higher rate of interest to protect their investment especially if the exchange rate is going against them.

      As far as I know the UK has never ever defaulted on a debt.

      Reply Try asking the US about our war debts.

    3. miami.mode
      January 31, 2014


      I should have added a PS to say that if you reply I doubt that I will be able to respond as I am off early tomorrow morning to play in the snow in a Eurozone country. Doubtless I will spend some €s on cheap Chinese gifts and cheap German wine but there is NOTHING George Osborne can do about it. Indeed, he has probably helped me by increasing the exchange rate by about 5% from a couple of months ago.

      Prost und Auf Wiedersehen.

      1. petermartin2001
        February 1, 2014

        Of course there is no reason why you shouldn’t spend your money in whatever way you like. The economy is made up of millions of people doing exactly that. But, overall the following relationship must hold true
        Public Sector Surplus +Private Sector Surplus +ROW Surplus =0

        The Public Sector are in deficit so the 1st term is negative.
        The Private Sector save more than they spend so the 2nd term is positive.
        The Rest of the World sell us more that we sell them so the third term is positive too.

        So the public sector deficit makes the two surpluses possible.

        If the government wishes to run a budget surplus, like Germany, it needs to run a trade surplus, like Germany. Otherwise the private sector will be bled dry. That’s what happening in Greece.

  17. ian wragg
    January 31, 2014

    Both Canada and Sweden managed to slash their debts and reduce government interference by slashing the public sector.
    Both countries are now on a sustainable trajectory.
    Much of what the UK Government spends is wasted, look at the Somerset Levels and the stupid non environmental agency. Letting rivers silt up and reed banks choke of water flow and then some (person ed) says on TV that reducing the river flow by 60% has had no effect on the flooding.
    If this is the level of employee of the public sector then we are doomed.
    I see the business case study for HS2 is being hidden by the transport secretary because it details what a load of cr.p it is. Do you really think you have a snowballs chance in hell of being re-elected after presiding over such incompertence.

  18. acorn
    January 31, 2014

    Are you trying to convince us that it would have been any different, if a Labour government had taken over from a Conservative government in May 2010?

    The financial situation would have been the same. The same Treasury officials; the same BoE Governor; the same Banksters and City Spivs, would have created the same mess and demanded the same solutions, leading to the same bail-outs and liquidity injections.

    Whatever colour government was in charge at the time, it would have used the same rubber stamp on the same bits of paper that neither side understood anyway; and still don’t. The same Regulators, would have drafted the same Acts of Parliament, but may have called them differing names, cos that’s what politicians do and then pretend they have re-invented fire.

    The only difference today is Labour would have cut the deficit slower to keep the economy running nearer its potential GDP output and unemployment lower, particularly in our exporting sectors. The extra £25 billion in interest, wow, that’s a whopping 1.6% of GDP. You could pay for that with exports, had the export machine been kept at speed by government purchasing, or one less government omnishables computer system!

    When the private sector stops spending and the government sector reduces spending, unless you are running a massive export surplus including exporting the Deeds to a central London mansion, the only way is down. QED.

  19. Neil Craig
    January 31, 2014

    It has fallen as a proportion of gdp rather than in absolute terms.

    This is fine – but it highlights the fact that the best way to solve the national debt problem is by growing the economy (though inflating money is a successful but dishonourable way also).

    Had Britain achieved the non-EU world average growth rate of 6% since 2008 the economy would be 140% its current size and even without putting any of the extra money raised into paying it off the debt would be not 134% of gdp but a relatively manageable 96%

  20. Tony
    January 31, 2014

    If we reissued the Bradbury Pound like we did in 1914 it is effectively interest free money.
    As a country we could pay this back as we could afford it.
    This would solve the current crisis overnight and save billions in interest payments every month.
    Obviously because of the criminal international bankers no politician seems to have the guts to do this.

    1. Denis Cooper
      January 31, 2014

      When the Treasury resorted to issuing the Bradbury pound the Bank of England was still a private bank. Since its nationalisation in 1946 there has been no point in the Treasury starting to issue its own currency for general circulation when it can induce the Bank to issue more of the normal currency and make it available for the use of the Treasury, and that is also effectively interest-free.

  21. JoeSoap
    January 31, 2014

    You are basically saying there is little to no difference whether Conservatives or Labour run the show. Either way the backdrop is a debt ridden government offering platitudes to the workers, benefits to those who won’t or can’t look after themselves and a few tax sops to foreigners who choose to stay or invest here.
    We need a government which budgets like the workers have to, and looks after them, and doesn’t follow the borrowing habits of the other 2 groups.

  22. petermartin2001
    January 31, 2014

    The problem with a discussion on the National Debt is that most people think its like a debt for a car or a house which has to be repaid. It is always referred to as a debt, which has negative connotations, but it could also be referred to as an asset of those who hold it.

    That £10 note in your wallet is £10 of government debt. If they didn’t have their debt you wouldn’t have your asset. Ed Balls doesn’t understand economics very well but he may well be the UK’s next chancellor .

    He’s recently promised to wreck the UK economy by 2020


    The headline actually says “balance the books” but it might as might just as well read Ed Balls pledges Britain will export more than it imports by 2020. Or Ed Ball pledges to stop the private sector saving by 2020. Or Ed Balls pledges to send the private sector into deficit by 2020. He’ll probably achieve none of these things but he’d be likely to crash the economy trying. He might want to look up the mess the Australian Labor Party got themselves into by promising an-impossible-to-achieve-surplus in the 2010 Australian election.

    George Osborne is promising exactly the same of course.

    An aircraft pilot would npt be allowed at the controls if he had no idea of how to fly a plane yet finance ministers the world over have no idea how to ‘fly’ their economies. If they did they would not be producing sonic booms at one instant and stalling the engines the next. Passengers do expect ‘soft landings’ at airports. I seem to remember that analogy being used around 2007/2008 when it was obvious there was going to be a big crash.

    Is there any chance of getting Ed and George to practice on an economic simulator before they cock it up for real?

    PS Does anyone know if such simulators exist? I’d say they are desperately needed.

    Reply It is you who would crash the plane by demanding ever more borrowing and debt.

    1. petermartin2001
      January 31, 2014

      If letting the public deficit do what it will is “demanding ever more borrowing and debt”, is letting the exchange rate do what it will demanding ever more currency devaluations?
      If government concentrated on keeping the economy in good shape, with low inflation, healthy levels of unemployment which meant the welfare bill was low and receipts of taxes were high, and that exports were at least on a par with imports, both the government deficit and the exchange rate would be at levels which everyone would be quite comfortable with.
      But, just as you don’t get a healthy exchange rate by targeting exchange rate at the most important economic parameter, neither do you get a healthy budget deficit, (or what most economists would consider to be healthy), by targeting that.

      1. petermartin2001
        February 1, 2014

        I think that should have been “healthy low levels of unemployment ” or , even better, ” “healthy high levels of employment “

    2. APL
      February 2, 2014

      petermartin2001: “PS Does anyone know if such simulators exist? I’d say they are desperately needed.”

      Yes, the IMF runs a few in some backwater out of the way places.

      P.S. It’s amusing to find the anti spam filter asks me if I am human, sometimes I’ve wondered the same thing about politicians!

      1. petermartin2001
        February 2, 2014

        I’d be interested to know more about these simulators if you have details.

        On the subject of spam filters I notice that John Redwood hasn’t chosen the type that asks for an answer to a simple arithmetical problem. Like 7-6= ?

        These would be too big problem for anyone arguing that a budget surplus was possible at the same time as an overseas trade deficit 🙂

  23. Ralph Musgrave
    January 31, 2014

    JR claims “If the state owes £1250bn and has to refinance this, being unable to repay it, it is vulnerable to rising interest rates.”

    Au contraire. If a government’s creditors start demand too much interest, the relevant government / central bank can simply print money, pay off debt as it matures, and tell creditors to get lost.

    Given the vast and unprecedented amount of debt that has been monetised as a result of QE, it’s not 100% clear that that “print and get lost” policy would be inflationary. But if it was, government just needs to raise taxes to counter that inflation. That taxation might be a political problem, but it’s not a strictly economic problem.

    Moreover, that tax increase would not, repeat not hit living standards: the purpose of the tax would simply be to prevent excess demand and thus excess inflation. That is, real GDP would be be affected. In fact advocates of Modern Monetary Theory are forever saying that the purpose of tax is to control inflation, not to fund government. That’s a slight exaggeration, but MMTers do have a point there.

    Reply Why then did the UK need an IMF visit in the mid 1970s and why did interest rates go up to 15% for government gilts? Why did interest rates go so high in 1992?

    1. Nick
      January 31, 2014

      Au contraire. If a government’s creditors start demand too much interest, the relevant government / central bank can simply print money, pay off debt as it matures, and tell creditors to get lost.

      One of those fairy stories told to you by politicians to get you to accept the mess.

      Printing works for fixed rate debts.

      For inflation linked debts, printing cannot be used. As fast as you print you get inflation and the debts go up. It’s just the same as saying the state can print tins of beans. It can’t.

      Now 85% of the debts are inflation linked, because the big debts that not even John admits to, are pensions and they are inflation linked. So is PFI debt, nuclear decommissioning, pension guarantees, …

      Fixed rate debts is just a small fraction.

    2. Ralph Musgrave
      January 31, 2014

      Three questions there. Taking them in turn..

      1. The IMF help was needed because Britain’s then poor balance of payments position, caused partly by the 1973 oil price hike. Britain ran out of external sources of credit. “External” problems are different to internal ones. E.g. a country could conceivably have no national debt at all, but still find no foreigners willing to lend to it because of a poor balance of payments.

      2. The high interest rates in the 1970s were not high REAL RATES of interest: they simply reflected the then high inflation.

      3. External stuff again. Those high interest rates were an attempt by government to maintain an unrealistically high exchange rate for Sterling.

      Hope I got some of that right (?)…:-)

      Reply Sterling was floating at the time. Interest rates were also high in real terms. The UK had the vicious twin deficit problem – large balance of payments deficit and large state deficit, the very problem now hitting countries like Argentina and Venezuela.

      1. Mark
        February 1, 2014

        Interest rates in the 1970s oscillated between strongly negative and strongly positive in real terms.

    3. Denis Cooper
      January 31, 2014

      That’s right, just print more money for the government to spend and waste, as much as it wants … nothing could possibly go wrong with that.

      I recall my son proffering his original thought that as people didn’t have enough money they should print some more; but he was only four then.

      1. petermartin2001
        February 1, 2014

        Sadly that would be illegal but he was astute enough to realise that all money is in fact printed. I hope you explained to him that only the government can print and issue money. If it issues too much you have inflation – too little and you get high unemployment. I think an intelligent 4 year old should be able to grasp the basics of Keynesian economics!

        1. Denis Cooper
          February 1, 2014

          As it was so long ago I couldn’t recall with any certainty whether he said “they” or specifically “the government”. In any case I explained to him why his superficially attractive idea was in fact a bad idea, and he was sufficiently intelligent to understand that. If any such discussion happened now I would probably add that money printing is the last resort of a desperate government, which I still believe to be the case even if the originator of that statement has since resiled from it.

          1. petermartin2001
            February 1, 2014

            money printing is the last resort of a desperate government”

            You mean they should strike more coins instead? All other money is either printed or issued by keystroke.

            So is the USA a ‘desperate’ government? They have followed a much looser fiscal policy than the UK. Result?their GDP is 7% higher than 2008. The UK is still at 2% less than the 2008 peak. Spain which has had an even tighter fiscal policy is at 12% less .

        2. petermartin2001
          February 1, 2014

          If that were true the US Government would be classed as ‘desperate’

          Their looser fiscal policy has been much more successful than the UK’s since 2008. The even tighter fiscal policy in the Eurozone countries has been disastrous for them.

        3. APL
          February 2, 2014

          petermartin2001: ” too little and you get high unemployment. ”

          You put the cart very much before the horse in this case.

          High employment does not follow from excessive money printing. If it did the EZ Spain wouldn’t be suffering from 50% youth unemployment or 30 % adult male unemployment.

          Nor after thirty years of inflationary ( official figure 2.5% per annum ) would the UK economy be in such a shambles.

          In fact growth comes first. If you have a growing economy, you can responsibly print money to accomodate the expansion of the economy. However if you choose not to, under those circumstances, the currency will appreciate against your competitors. That is, your currency unit it will appreciate in value against goods and services in the economy – Ta Da! Deflation.

          If however in a situation where the economy is performing poorly, and 1/2 -1% growth can only be described as anemic, then printing money simply makes economic conditions worse.

          That’ll do for now.

          1. petermartin2001
            February 2, 2014

            Can you give me case study of where growth came first? Without any government stimulus?

    4. jeffery
      January 31, 2014

      The answer all round seems to be exchange rates. It was why IMF standby facilities were required in 1976 and (one reason) why a government printing away its debt will not work indefinitely.

    5. petermartin2001
      January 31, 2014

      “Why then did the UK need an IMF visit in the mid 1970s and why did interest rates go up to 15% for government gilts? Why did interest rates go so high in 1992?”

      Because, in each occasion the government wasn’t using government gilts for the purposes of recycling excess reserves built up in the UK banking sector -which would be the sensible use – but rather they were trying to entice hot money into the £ to try to shore up its value against the US$ , in the 70s, or the DM in the 1992 crisis.

      Bretton Woods had ended in well before the 70’s IMF debacle so there was no need for such self inflicted pain. The Labour government should have let the £ float to its own level but were stuck in fixed exchange rate thinking.
      The same story in 1992. Trying to track the DM was not the best of Nigel Lawson’s ideas! And I know you warned him about it at the time.

      1. Mark
        February 1, 2014

        The Bretton Woods system was not formally disbanded until the Smithsonian talks of 1971, when the system of fixed exchange rates and periodic devaluations in crises was replaced by managed floating, and the dollar was no longer pegged to gold.

        1. petermartin2001
          February 1, 2014

          Yes that’s right. Bretton Woods ended in 1971. The “IMF debacle” was in 1976.

          So why were the Labour Government so concerned that the £ was falling below $2 ? Why did they waste £ billions trying to prop it up? How incompetent can governments get?

          Had no-one told them it had ended?

  24. Nick
    January 31, 2014

    Lies on top of lies.

    Thereafter, they greatly increased spending, and later acquired holdings in large banks. By the time they left office, in 2009-10, national debt had reached 151.7% of our national income.

    Nope. That’s borrowing, not debts. Debts are far bigger than just the borrowing which is a tiny faction of the debts.

    These figures do not include the value of future pension liabilities under the state pension scheme, though the government has published separate numbers for this for those interested.

    Really? Where? You’ve promised to publish them but all we get from you is that they are published but you can’t tell us where the numbers are.

    “But Mr Voter, the numbers have been available in the local admin office for the last nine months.”

    “Oh yes, well as soon as I heard I went straight round to see them, yesterday afternoon. You hadn’t exactly gone out of your way to call attention to them, had you? I mean, like actually telling anybody or anything.”

    “But the numbers were on display …”

    “On display? I eventually had to go down to the cellar to find them.”

    “That’s the display department.”

    “With a flashlight.”

    “Ah, well the lights had probably gone.”

    “So had the stairs.”

    “But look, you found the notice didn’t you?”

    “Yes,” said Arthur, “yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying ‘Beware of the Leopard’.”

    with apologies to Douglas Adams.

    So come on where are the numbers and how much do you owe on top for the pensions, PFI, nuclear decommissioning. ….

    It’s very simple. The state pension costs 146K to provide. However if a 26K a year worker had been allowed to invest their NI, they would have had a fund of 835K. Even knocking off the 10% that covers the insurance element, that’s still 600K that has been stolen by the state. And its going to get worse.

    Reply I have published the numbers in the past, and they are now available as a link to ONS under another blog posting on this site today. I reminded people in my article that the pension liabilities were not in the numbers I used.

  25. Mark
    January 31, 2014

    I agree with the thrust of this: it is important that we sort out the banks that act as a drag on the PSND and the wider economy. I don’t find it easy to disentangle what the official numbers really mean – a hot towel around the head reading this


    shows a large number of discrepancies between normal accounting procedures and those used by government in defining the extent of financial interventions and changes in them. It is clear from RBS’ recent results that there is still a long way to go in resolving banking balance sheet problems. A real signal of success would be a return to normal interest rates for savers to offer a modest but positive real yield.

    It should also be equally clear that shuffling some of these problems off by ignoring them through accounting convention does not amount to actually solving them. Equally, policies need to address the real banking problems, rather than seeking to hide them by creating a bubble market in property.

    1. Mark
      February 1, 2014

      The link is a pdf file from the ONS describing the adjustments between PSND, PSNB and PSND ex/PSNB ex and how the financial interventions are included in PSND and PSNB.

  26. uanime5
    January 31, 2014

    Public sector net debt when Labour came to power in 1997 was running at 40.5% of our total national income. In the early days of Labour, following Conservative spending plans, they took it down to 30.4% by 2001-2.

    By the time they left office, in 2009-10, national debt had reached 151.7% of our national income.

    Where are you getting these figures from as I can’t find anything like this in the ONS report you mentioned. Is it contained in one of the XLS files as I can’t get them to load?

    According to Trading economics the Debt to GDP level was 49.3% in 1997, fell to 37.5% in 2003, rose to 43.4 in 2007, was 52.3% in 2009 (after the 2008 financial crisis), and in 2013 had risen to 88.7% (due to Osborne borrowing more money than Labour did). So it’s misleading to claim that only Labour increased the national debt when the Conservatives have increased it much more.

    At the end of last year this figure had fallen to 134.5% of GDP.

    I take it you’re referring to Table 5 on page 30 which included the temporary effects of financial intervention. Even though according to page 5, table 1 which excludes these temporary effects, the Public Sector Net debt as a percentage of annual GDP rose from 74.4% in December 2012 to 75.7% in December 2013.

    So effectively an fall in the national debt is due to less money being given to the banks, rather than the state requiring less money.

    Today the Chief Secretary to the Treasury has explained how Labour’s proposed rules for the next Parliament should they be in government would allow them to borrow substantially more than the Coalition proposals over the next Parliament.

    Given that Osborne said he’d need to borrow less than Darling, then ended up borrowing much more than him I don’t have much faith in the predictions of the coalition.

  27. petermartin2001
    January 31, 2014

    The underlying motivation for the use of big scary numbers is to promote the idea of economic austerity as a solution for Britain’s economic problems. If that’s what the Conservative Party wants, why don’t they advocate joining the Euro? The UK then would soon have double digit unemployment just like in most countries of the Eurozone.

    The fact that it hasn’t is because the British government has its own sovereign currency. It can be much more flexible than Spain or France in its fiscal and monetary policies. That should be the key reason for wanting out of the EU. IMO.

    There may have been mistakes made in the name of Keynes in the past but he’s still head and shoulders above any other 20th century economist. Don’t throw out the baby with the bathwater and reject Keynes entirely. Besides Keynes the economic strategists in the party might want to look up people like Lerner, Minsky and even Milton Friedman in his early works. He somehow, over the course of his career, manage to dis-understand what he once had understood very well.

    In the modern era Keynesian thinking has moved on. I’d recommend economists like Bill Mitchell, Stephanie Kelton, Randall Wray, Warren Mosler, and Steve Keen. They offer a much more optimistic alternative to the economics of austerity which clearly doesn’t work anyway. If it did Greece and the Eurozone would be in marvellous shape.

  28. Steve C
    February 1, 2014

    Excellent article, however it stills highlights that the coalition has not controlled or reduced public spending to a sufficient extent. Parliament and Whitehall seem unwilling or unable to stop wasting or spending money, for example, the £11bn odd being given away to fund corrupt governments and funding indirectly of wealthy countries space programs demonstrates a continued lack of respect for the public’s money. Effectively nationalising overseas aid is evidence of the taxing mentality of all parliamentary parties that still dominates behaviours.

    The national debt threat to the stability of Sterling increasessignificantly with a Yes vote in the Scottish referendum. The forced ‘guarantee’ by the English of Scotland’s share of the debt may trigger interest rates to rise for Sterling bonds to an unsustainable level in late 2014 in the event of a Yes vote. At the very least market investors would become concerned as our 2 nations embarked on the complex devolution process and bond rates would need to rise.

    A Sterling currency crisis similar to those seen in Argentina, Ireland or Iceland increases in probabilty as we run out of time to control and reduce our debts. Printing money will not be possible on the scale needed unless we are prepared to impoverish a large percentage of our nation with very high inflation. High inflation cannot be the only tool used ( unless with are prepared to accept German pre-DMark levels of inflation ) and hence massive English asset ‘taxes’ will be needed to avoid bankruptcy. Pensions, income, capital assets and savings will be ruthlessly taken to try to avoid collapse of our financial system.

    Ironically, after 30 years of the Barnett formula and other subsidies, the Scottish will most likely substantially negotiate their debts and liabilities away. Scotland is now well positioned to keep the oil revenues, take over our multi-billion investment in renewable energy in Scotland, keep the Clyde shipyard contracts and,with the British banks now almost exclusively registered in Edinburgh, to control the English banking sector.

    Oh John, please do get your leadership to run the country in a fiscally prudent manner and to prepare well for a Yes vote in the referendum.

    Dangerous times ahead are, I fear, a distinct and increasing possibility.

  29. petermartin2001
    February 1, 2014

    Many contributors to this blog perhaps won’t like this idea but there’s a relationship between Government surpluses and recessions which inevitably follow. See for example

    The theory to explain this is not complicated. A government surplus means that governments take more in taxes out of the economy than they spend back in. Therefore the private sector become poorer and less able to keep the economy growing.

    Government surpluses are quite rare but they do happen and they aren’t good! Even a sharp fall in the government deficit can be enough to trigger a recession.

    I’d be interested to know if anyone can show significant exceptions to this rule.

    Reply What utter nonsense. Looked recently at the long run of Chinese surpluses and the high growth rate. Look at Sweden’s debt reduction programme or Norway’s oil surplus etc

    1. John Armour
      February 2, 2014

      I think the examples you gave just prove Peter’s point as explained by Professor Kelton in the link to that Business Insider magazine article (not exactly a lefty rag)

      You can only run a budget surplus (T > G) if you run a trade surplus (X > M)

      Both China and Norway both run large trade surpluses. Don’t know anything about Sweden.

      But China actually runs massive government sector deficits, not surpluses.

      We really have no idea of the extent because of the way they do their national accounts. By that I mean they book a lot of government spending as Investment rather than Spending. They can do this using their large reserves of labour as an inflation buffer-stock. The Chinese do not share our irrational fear of debt.

  30. PeterM
    February 1, 2014

    I should have said that the relationship is true for countries like the US and UK who aren’t net exporters.

    Countries like China, Germany, Norway, and Sweden who are net exporters can run government surpluses without any real problem.

    So if the UK want to run a budget surplus it has to run a trade surplus too.

  31. Edward Eastwood
    February 2, 2014

    Peter Martin is correct in his statements concerning budget deficits creating private surplus which in turn fuel the economy- not drain it! This is simple, fundamental economic principle! You’re advocating ideology over common sense Mr. Redwood.
    Supply side economics has proven to be long term drain on the economy and is fast becoming discredited. Supply does not dictate or provide a strong economy, nor does it lead to a strong export market. Demand creates supply, and the more in work – the stronger the economy and when in the hands of responsible governments creates a strong trade surplus.
    Too bad Thatcher and her successors chose to ignore this, otherwise the UK would not be in the shape its in at the moment.

    1. A.Shelton
      June 17, 2014

      History is always corrupted by those in power and economics is likewise written up by self proclaimed experts claiming to employ scientific principle. We shouldn’t be confused by this, those who have ownership of the nation’s wealth have always forced the right to use any means, religion politics military greedy and corrupt servants to protect themselves from those who produce it for them. Those who would share in it are now taught to believe that the democratic principle compels the power players to act on their behalf and that capitalism is a leveler. Marx spent thirty years irritating his haemerrhoids in the British Library i proving it wasn’t. Piketty with mega-computers again proves the obvious, ‘the rich get rich as the poor get poorer’ .
      The power and wealth has moved over centuries from the high profile militarist Monarchies to the current crop of low profile capitalist bandit oligarchs, 46 owning the same wealth as 2 billion destitute unacountables who are breeding and destroying the environment so fast that there will never be enough to go around no matter what they do to make their lives less miserable.

  32. adelaide hills b&b
    June 15, 2014

    adelaide hills b…

    £2,228,300,000,000 and falling – the UK’s national debt

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