The Monthly: July 2021

02 Jul 2021 / Corporate research

Feature article:

UK public sector net debt: Out of control?

Financeable at present, but the worm may turn

Since the late 17th century, when the National Debt – effectively today’s public sector net debt (PSND) – was virtually nil, it has fluctuated widely, with financing various wars being the key factor. It soared on the back of the Napoleonic Wars, before falling during much of the 19th century, until World Wars 1 and 2 saw it reach record levels.

PSND first passed the £1tr mark as recently as 2011. Over the intervening decade, this figure has more than doubled. In short, it took over three centuries for PSND to reach £1tr and less than the last decade for it to double.

Inevitably, this surge raises the basic question as to whether the UK’s public finances are spiralling out of control. There is minimal public debate as to how UK PSND should be cut. Indeed, there is a tacit acceptance among many commentators that reducing it conventionally – without excessive dependence on the printing press – is not feasible. The two great crises of recent years – the financially-driven recession of 2008/09 and COVID-19 – have had a devastating impact on PSND levels. During the COVID-19 period, public expenditure – much of it health-related – has continued to soar. Moreover, tax receipts, especially from Income Tax and Corporation Tax, have fallen noticeably. The net result is a projected Public Sector Borrowing Requirement (PSBR), for 2020/21, of £355bn – almost £1bn per day.

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