This article is from the source 'bbc' and was first published or seen on . The next check for changes will be

You can find the current article at its original source at https://www.bbc.co.uk/news/business-50504151

The article has changed 30 times. There is an RSS feed of changes available.

Version 21 Version 22
How much money is the UK government borrowing, and does it matter? How much money is the UK government borrowing, and does it matter?
(21 days later)
Governments borrow to fund "day-to-day" spending, as well as long-term infrastructure projects like Crossrail
The government generally spends more than it raises in tax.The government generally spends more than it raises in tax.
To fill this gap it borrows money, but that has to be paid back - with interest - and that can influence wider tax and spending plans. To fill this gap it borrows money, but that has to be paid back - with interest.
Why does the government borrow money?Why does the government borrow money?
The government gets most of its income from taxes. For example, workers pay income tax, everyone pays VAT on certain goods, and companies pay tax on their profits. The government gets most of its income from taxes. For example, workers pay income tax, everyone pays VAT on certain goods, and companies pay tax on profits.
It could, in theory, cover all of its spending from taxes, and in some years that happens. It could, in theory, cover all of its spending from taxes, and that sometimes happens.
But if it can't, it will cover the gap by raising taxes, cutting spending or borrowing. But, if it can't, the government covers the gap by raising taxes, cutting spending or borrowing.
How the government raises and spends £1 trillion a yearHow the government raises and spends £1 trillion a year
Higher taxes mean people have less money to spend, so businesses make less profit, which can be bad for jobs and wages. Lower profits also mean companies pay less tax.Higher taxes mean people have less money to spend, so businesses make less profit, which can be bad for jobs and wages. Lower profits also mean companies pay less tax.
So, governments often borrow to boost the economy. They also borrow to pay for big projects - such as new railways and roads - which they hope will help the economy. So, governments often borrow to boost the economy. They also borrow to pay for big projects, like new railways and roads.
Governments borrow to fund "day-to-day" spending, as well as long-term infrastructure projects like Crossrail
How does the government borrow money?How does the government borrow money?
The government borrows money by selling financial products called bonds.The government borrows money by selling financial products called bonds.
A bond is a promise to pay money in the future. Most require the borrower to make regular interest payments over the bond's lifetime. A bond is a promise to pay money in the future. Most require the borrower to make regular interest payments.
UK government bonds - known as "gilts" - are normally considered very safe, with little risk the money will not be repaid.UK government bonds - known as "gilts" - are normally considered very safe, with little risk the money will not be repaid.
Gilts are mainly bought by financial institutions in the UK and abroad, such as pension funds, investment funds, banks and insurance companies.Gilts are mainly bought by financial institutions in the UK and abroad, such as pension funds, investment funds, banks and insurance companies.
The Bank of England has also bought hundreds of billions of pounds' worth of government bonds in the past to support the economy, through a process called "quantitative easing".
How much is the UK government borrowing?How much is the UK government borrowing?
The amount the government borrows varies from month to month. The amount the government borrows varies month to month.
For instance, when people submit tax returns in January, they often pay a large chunk of their annual tax bill in one go, so the government sees a jump in the amount of money it takes in. For instance, it tends to borrow less in January, when many people pay a large chunk of their annual tax bill in one go.
So it is more helpful to look at the whole year, or the year-to-date. So, it is more helpful to look at the whole year, or the year-to-date.
In the last financial year, to March 2024, the government borrowed £122.1bn. In the last financial year, to March 2024, the government borrowed £121.9bn.
The most recent monthly figures show that borrowing was £3.1bn in July, an increase of £1.8bn on the same month last year. Borrowing was £16.6bn in September 2024, an increase of £2.1bn from September 2023.
The total amount the government owes is called the national debt. It is currently about £2.7 trillion. The total amount the government owes is called the national debt. It is currently about £2.8 trillion.
That is roughly the same as the value of all the goods and services produced in the UK in a year, known as the gross domestic product, or GDP.That is roughly the same as the value of all the goods and services produced in the UK in a year, known as the gross domestic product, or GDP.
That current level is more than double what was seen from the 1980s through to the financial crisis of 2008. The current level is more than double what was seen from the 1980s through to the financial crisis of 2008.
The combination of the financial crash and the Covid pandemic pushed the UK's debt up from those historic lows to its current level. The combination of the financial crash and the Covid pandemic pushed the UK's debt up.
But in relation to the size of the economy, UK debt figures are still low compared with much of the last century, and also compared with some other leading economies. But, in relation to the size of the economy, UK debt figures are low compared with much of the last century. They are also low compared with some other leading economies.
How much money does the government pay in interest?How much money does the government pay in interest?
The larger the national debt gets, the more interest the government has to pay. The larger the national debt, the more interest the government pays.
That extra cost was not as big when the interest rates due were low through the 2010s, but it became more noticeable after the Bank of England raised interest rates. That cost was not as great when interest rates were low through the 2010s, but became more noticeable after the Bank of England raised interest rates.
The amount of interest the government pays on national debt fluctuates, and by one measure, hit a 20-year high in early October 2023. The amount of interest the government pays on national debt fluctuates and, by one measure, hit a 20-year high in early October 2023.
Around a quarter of UK debt is index-linked, meaning payments are directly linked to the rate of inflation. When inflation rose it pushed up the bill for servicing debt significantly, although these payments are now easing. If the government has to set aside more cash for paying debts, it may mean it has less to spend on public services.
If the government has to set aside more cash for paying its debts, it may mean it has less to spend on the public services which it borrowed to fund in the first place.
Why does it matter if governments borrow more?Why does it matter if governments borrow more?
Some economists fear the government is borrowing too much, at too great a cost.Some economists fear the government is borrowing too much, at too great a cost.
Others argue extra borrowing helps the economy grow faster - generating more tax revenue in the long run. Others argue extra borrowing helps the economy grow faster - generating more tax in the long run.
With measures such as a cut in National Insurance announced at the March Budget, the OBR expects borrowing to rise slightly in the next financial year, before remaining in line with previous forecasts. The Office for Budget Responsibility has previously warned that public debt could soar as the population ages and tax income falls.
It would fall below 3% of GDP by 2025-26, meeting one of the financial rules the previous government decided to set itself.
But the OBR has previously warned that public debt could soar as the population ages and tax income falls.
In an ageing population, the proportion of people of working age drops, meaning the government takes less in tax while paying out more in pensions.In an ageing population, the proportion of people of working age drops, meaning the government takes less in tax while paying out more in pensions.
In its latest forecasts in March, the OBR said debt, measured against the size of the economy, is still set to rise over the next four years, before falling back marginally in the fifth year. In its latest forecasts in March, the OBR said debt, measured against the size of the economy, is set to rise over the next four years, before falling slightly in the fifth year.
Other economists argue that big economies like the UK could borrow much more than they currently do, and the negative impact is greatly exaggerated.Other economists argue that big economies like the UK could borrow much more than they currently do, and the negative impact is greatly exaggerated.
What is the difference between the government deficit and debt? The government has decided to stick to its current rule that debt - the total amount the government owes - must fall in five years' time.
However, Chancellor Rachel Reeves is expected to change the definition of debt to enable her to raise more money for investment.
What is the budget, when is it and what will be in it?
What is the difference between deficit and debt?
The deficit is the gap between the government's income and the amount it spends.The deficit is the gap between the government's income and the amount it spends.
When a government spends less than its income, it has what is known as a surplus.When a government spends less than its income, it has what is known as a surplus.
Debt is the total amount of money owed by the government that has built up over years.Debt is the total amount of money owed by the government that has built up over years.
It rises when there is a deficit, and falls in those years when there is a surplus.It rises when there is a deficit, and falls in those years when there is a surplus.