Debt Levels in the UK

Debt levels in the UK have been growing significantly for both:

1. National Debt (Government debt. The amount government spending exceeds tax revenues)
2. Personal debt (consumers, firms)

Personal debt levels in the UK

Personal debt includes both secured (usually mortgages, loans against value of home) and unsecured (personal loans, credit card debt). The level of both types of debt have increased in the past few years. Generally, secured debt is seen as less harmful, but, with falling property prices there is the prospect of more people facing negative equity and difficulties of repaying should they default.

• Consumer debt totals £1.4 trillion (about 80% of this debt is in the form of mortgage loans secured against property)
• Over 100,000 go insolvent each year
• UK has highest levels of consumer borrowing in Europe. (but less than US)
• In the past year borrowing has increased whilst saving has fallen. For every £1 saved. Britons borrow 69p (on loans, credit cards but excludes mortgages).  A year ago, this ratio was 29p borrowed for every pound spent.
• Falling house prices could make secured debt unsecured and leave people with negative equity
• According to National Consumer Council, about six million people are struggling to meet credit demands.
  

National Debt in UK

Government debt is the amount the government need to borrow from the private sector, usually in the form of selling bonds to investment trusts and pension funds.

• National debt in UK stands at £555bn in June 2008.
• As a % of GDP national debt has increased from 30% of GDP to a forecast 38% in 2009 (forecast is likely to be wrong and an underestimate)

Graph of National Debt

After reaching a peak of 43% in 1997, National debt fell to just 29.8% of GDP in 2003; this was due to restrained government spending and consistent economic growth. The increase in debt since 2003, reflects ambitious spending plans by the government.
Furthermore as the economy slows down, the government debt will only increase. Income tax revenues will fall, VAT revenues will fall. Unemployment will increase, increasing cost of benefits to unemployed. The government has even postponed petrol tax rises which will cost an additional £2.5 bn. Therefore, most economists now predict that National debt will soon exceed the 40% of GDP, Gordon Brown once set as a limit for Government borrowing. The UK has had worse levels of debt before, but, it will be embarrassing politically and represents a sharp reversal in borrowing in the past 5 years.

Government debt increases the burden on the future tax payer; debt interest payments already account for nearly £30bn a year.
Annual Government Borrowing.

Public sector net borrowing in 2008/09 is forecast to be £43 billion. Although with the economic downturn and cancellation of petrol tax increases, borrowing could increase sharply in 2009.

Again, this is likely to break the government’s rule of not borrowing more than 3% of GDP in one particular year.

Links and Sources of Statistics

• Consumer Borrowing in UK at BBC statistics
• Consumer borrowing soars at Guardian
• National Statstics online – National debt