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Oct 11, 2023

20-year high in UK debt as borrowing increases

The total amount the Government owes currently sits at around £2.59 trillion.

The recent rise in borrowing costs comes at a difficult time for Chancellor Jeremy Hunt as he prepares for his Autumn Statement on 22 November.

The price of 30-year UK Government bonds also fell, with investors forecasting that global interest rates will remain high for longer than anticipated.

In a report earlier this year, the Office for Budget Responsibility (OBR) said that Britain's plans for stabilising and reducing debt were modest by historical and international standards.

It also warned that an aging population, climate change, and global tensions already pose big fiscal challenges for the UK.

The OBR said borrowing costs in the country have risen more than in any other G7 economy and are more volatile than any other time in the past 40 years.

"While other governments also face rising interest rates on debts close to or in excess of 100% of GDP, several factors make the UK's public debt position more vulnerable to some shocks than in the past or other advanced economies."

Why does the Government borrow money?

In theory, the Government could cover most, if not all, of its income from taxes.

But when Government spending exceeds the total tax tax - in times of financial uncertainty or high unemployment, for example - it has to either raise taxes, cut spending or borrow.

People spend less money when taxes are higher, so businesses make less profit, which can negatively affect jobs and wages. Companies always pay less tax when their profits are lower.

The Government will often borrow to fund public services or invest in projects big projects such asthe Elizabeth line in London, which should boost the economy.

How does the Government borrow money?

The Government borrows money by selling financial items called bonds.

Bonds are promises to pay money in the future. As part of the bond's lifetime, borrowers are required to pay interest regularly.

The Bank of England has bought hundreds of billions of pounds' worth of Government bonds in the past to support the economy through a process called "quantitative easing".

UK Government bonds or "gilts" are normally considered very safe - there is little risk the money will not be repaid.

Gilts are mainly bought by pension funds, investment funds, banks and insurance companies in the UK and overseas.

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