UK national debt set to rise - to over £2 trillion (From Business in Dorset)

UK national debt set to rise - to over £2 trillion

2:57pm Monday 23rd February 2009

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THE UK National debt is set to rise above £2 trillion, a figure that is higher than Britain's Gross Domestic Product (GDP) - meaning the nation's wealth would be outstripped by its debt. At the end of March 2008, general government debt was £614.4 billion, equivalent to 43.2 per cent of GDP. At the end of January 2009, general government debt was £703.4 billion, equivalent to 47.8 per cent of GDP.

Given the government's bail-outs of Banks and its fiscal measures to boost the economy, the Office for National Statistics (ONS) expects to have to add between £1 trillion and £1.5 trillion to the UK's public sector net debt, taking the total national debt to an unprecedented £2.2 trillion – just under 150pc of gross domestic product. This would be the worst debt total since the 1950s, when Britain was in the process of paying back its war debts.

Government debt (also known as public debt or national debt) is money (or credit) owed by any level of government; either central government, federal government, municipal government or local government. As the government represents the people, government debt can be seen as an indirect debt of the taxpayers. The government accumulates debt over time by running a deficit: that is, by spending more than it raises in taxes. Some consider all government liabilities, including future pension payments and payments for goods and services the government has contracted for but not yet paid, as government debt.

Although the sums involved are likely to frighten many taxpayers, the Government and independent analysts insist that the eventual cost to the taxpayer – even in the case of a further severe financial slide – would be only a fraction of this total. But all agree that taxes will have to rise in the future; by how much and in what way are the big questions.

Significantly at a time of falling interest rates but loss of confidence, those in jobs with steady incomes are using interest rate cuts to reduce their loans, by keeping payments the same. Those with money are seeing a fall in income from their investments and both groups have cut back on spending. So the expected boost to the economy, as a result of cuts in interest rates, is not happening. Added to this, banks are not lending as expected, business confidence is falling along with profits, and government income is dropping dramatically, down £7 billion in January from the same time last year!

Government spending is also expected to rise sharply over the coming months as unemployment surges, and the deep contraction in activity, on all fronts, will continue to reduce tax revenues.

The ONS is going to have a challenge keeping up with the figures!

Chris Slocock

Past President Dorset Business
Vice Chairman SWCC
BCC Business representative for the SW

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