10 key facts about debt in the UK

15 November by Tim Jones , Jubilee Debt Campaign

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 Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. 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 IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
’s list of 36 rich countries. The latest IMF figures show the UK’s current account deficit as 4.4% of GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
, 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 Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. 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 Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts). , 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:

  1. A quarter of UK government debt is owed to the UK government itself,
  2. Three-quarters of UK government debt is owed to people and institutions in the UK
  3. Of G7 economies, only Germany has a lower government debt (as a proportion of GDP) than the UK
  4. The UK government can currently borrow at the cheapest interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

    The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
    in its history
  5. The UK government is paying virtually the lowest amount of interest on its debt in recorded history, as a proportion of GDP
  6. UK government tax revenue (as a proportion of GDP) is the third lowest of G7 countries, and well behind other European countries
  7. The debt of the UK’s private sector is more than four times as big as that of the government
  8. Unsecured personal debt in the UK is rising rapidly
  9. The UK economy has the largest deficit with the rest of the world of any rich country
  10. The UK’s finance sector is the most exposed to a crisis of any G7 economy


Author

Tim Jones

Jubilee Debt Campaign


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