Some people tell me UK state debt is too high and we need to take tougher and more urgent action to bring it down. I disagree.
According to the ONS at the end of the last financial year UK state borrowing was £1821bn or 84% of GDP. This is well below Japan, Italy, Belgium and some other advanced countries and not very different from the USA and France.
It is not, however, a very meaningful figure. The Bank of England has bought up £435bn of the debt. As the UK state owns the Bank of England and receives dividends from its interest receipts we should deduct this part of the state debt from the total. That brings it down to £1387bn or 64% of GDP actually owed to people and institutions outside the state. This is a perfectly manageable figure.
Today the UK government can borrow at 0.5% for 10 year money and at below 1% for 30 year money. These are very low rates, showing markets think there is little risk in lending to the UK state. In the 1970s when the Labour government was spending and borrowing too much they had to pay more than 15% to borrow. They ignored these warnings and ended up at the IMF begging for a loan. The IMF demanded spending cuts and a lower deficit.
Today’s problem worldwide in advanced countries is fighting deflation and economic slowdown. Markets are telling governments, companies and individuals they can borrow more for decent projects. There is too much saving and not enough investment going on.
It would be quite wrong as the rest of the world fights recession and the economic impact of the virus for the UK to tighten fiscal policy hastening a bigger downturn. Yesterday we learned that Hong Kong is offering helicopter money. Every adult citizen will be given HK$10,000 to spend, to try to fight recession. That is how bad it is in Asia.