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How much money is the UK government borrowing, and does it matter? How much money is the UK government borrowing, and does it matter?
(30 days later)
Governments borrow to fund "day-to-day" spending, as well as long-term infrastructure projects like CrossrailGovernments 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.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 profits. The government gets most of its income from taxes. For example, workers pay income tax and national insurance, everyone pays VAT on certain goods, and companies pay tax on profits.
It could, in theory, cover all of its spending from taxes, and that sometimes happens.It could, in theory, cover all of its spending from taxes, and that sometimes happens.
But, if it can't, the government covers 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 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, like new railways and roads. So, governments often decide to borrow to boost the economy. They also borrow to pay for big projects, like new railways and roads.
How the government raises and spends £1 trillion a year
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.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.
How much is the UK government borrowing?How much is the UK government borrowing?
The amount the government borrows varies month to month.The amount the government borrows varies month to month.
For instance, it tends to borrow less in January, when many people pay a large chunk of their annual tax bill in one go.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 across a whole year, or the year-to-date.
In the last financial year, to March 2024, the government borrowed £121.9bn. In the last full financial year, to March 2024, the government borrowed £125.1bn.
Borrowing was £16.6bn in September 2024, an increase of £2.1bn from September 2023. The most recent monthly figures show the government borrowed £17.4bn in October 2024, which was the second highest October figure since monthly records began in 1993.
The total amount the government owes is called the national debt. It is currently about £2.8 trillion. Borrowing since March has stands at £96.6bn, which is £1.1bn more than for the same period in 2023.
The total amount the government owes is called the national debt. It is currently about £2.8 trillion - or £2,800,000,000,000.
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.
The 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.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 low compared with much of the last century. They are also low 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, the more interest the government pays.The larger the national debt, the more interest the government pays.
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.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.
It hit £9.1bn in October 2024, the highest October figure since monthly records began in 1997.
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 debts, it may mean it has less to spend on public services.
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 in the long run.Others argue extra borrowing helps the economy grow faster - generating more tax in the long run.
The Office for Budget Responsibility has previously warned that public debt could soar as the population ages and tax income falls. The independent Office for Budget Responsibility, which monitors the UK government's spending plans, 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 set to rise over the next four years, before falling slightly in the fifth year. But some economists argue that the UK could borrow much more than it currently does, and that the risks of doing so are 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. Labour has decided to stick to a rule followed by the previous government that debt - the total amount the government owes - must have fallen as a proportion of the economy in five years' time.
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, in October's Budget, Chancellor Rachel Reeves changed the definition of debt that the government would use to enable her to raise more money for investment.
However, Chancellor Rachel Reeves is expected to change the definition of debt to enable her to raise more money for investment. It will now track a different, broader measure of debt called public sector net financial liabilities (PSNFL). This includes, for example, the money the government gets from people repaying their student loans.
What is the budget, when is it and what will be in it? Budget 2024: Key points at a glance
Rachel Reeves’ tax-raising Budget will affect you for years
What is the difference between deficit and debt?What is the difference between deficit and debt?
Debt is the total amount of money owed by the government that has built up over years.
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 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.