UK government debt

Why did this cause a fuss?

http://www.youtube.com/watch?v=BAT_RW693BQ

(2:08 – 2:17)

UK government debt

UK debt

0

100

200

300

400

500

1987

1990

1993

1996

1999

2002

2005

2008

2011

Year

Per

cen

t o

f G

DP

Government debt

Private debt

UK government debt

Debt: The total amount which is owed (not including interest payments)

Deficit: The gap between income and expenditure in one year (so the amount of new borrowing in one year)

How does the UK government borrow?

How does the UK government borrow?

1) Bonds (92%): Borrow money in return for a document which says a certain amount will be repaid at a certain time, with a fixed interest payment every year.

Eg: Get £1,000 now, on promise to repay £1,000 in 10 years, plus £50 interest every year

How does the UK government borrow?

1) Bonds (92%): Borrow money in return for a document which says a certain amount will be repaid at a certain time, with a fixed interest payment every year.

Eg: Get £1,000 now, on promise to repay £1,000 in 10 years, plus £50 interest every year

2) National savings (8%): People deposit money in savings account which government can use. But government repays on demand when people want the money back.

UK government debt and deficit

Source: International Monetary Fund

-20

0

20

40

60

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100

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Year

Per

cen

t o

f G

DP

Deficit

Debt

UK government deficit

Source: International Monetary Fund

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Per

cen

t o

f G

DP

Who is the debt owed to?

Who is the debt owed to?

0

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1400

2007 2012

Year

£ b

illi

on Bank of England

Domestic

External

What else would you want to know about a debt?

What else would you want to know about a debt?

1) Interest rate

The UK government can currently borrow for:

5 years at 1.6%

10 years at 2.9%

30 years at 3.7%

Inflation: 2.7%

What else would you want to know about a debt?

What else would you want to know about a debt?

2) Maturity

Average for UK debt is 14 years

Others:

United States: 5 years

Germany: 6 years

France: 7 years

What are possible ways of reducing your debt?

What are possible ways of reducing your debt?

1) Cut spending and increase taxes (but may crash or stagnate the economy)

What are possible ways of reducing your debt?

1) Cut spending and increase taxes (but may crash or stagnate the economy)

2) Inflation

What are possible ways of reducing your debt?

1) Cut spending and increase taxes (but may crash or stagnate the economy)

2) Inflation

3) Growth

What are possible ways of reducing your debt?

1) Cut spending and increase taxes (but may crash or stagnate the economy)

2) Inflation

3) Growth

4) Default