Deloitte: Debt of UK Government 79 per cent of GDP

20 November 2014

At current state, the debt of the UK Government is as high as £1.4 trillion, which is 79% of its GDP. This debt is caused, among others, by the Government’s decision to borrow funds to balance its deficit. This decision is part of its deficit reduction plan and burdens not only the tax payer but also UK’s financial security, conclude Deloitte and Reform in their report. As a result of this, the UK Government should not only focus on reducing its deficit but also its public debt.

The ‘State of the State 2014’ report, recently released by professional services firm Deloitte and think tank Reform analyses the operation of the UK public sector. In this year’s edition, the analysts focussed on the Government’s deficit and the challenges the Government faces in successfully completing the deficit reduction plan.

As a result of the global financial crisis, the UK Government’s deficit reached an all-time high in 2010, when its annual spending was £159 more than its income. Since then, the Government has set out to reduce its annual deficit, and has, according to the figures, been successful at this so far. Looking at the fiscal balance of 2014-2015, it can be concluded that the UK Government, with an ‘income’ of £648 billion and a spending of £732 billion, faces a deficit of £84 billion for this year. A number which is considerably lower than the £159 in 2010, but is still £7 billion a month, just over £1.6 billion a week, or £0.23 billion a day. The researchers state that if the government is able to complete its deficit reduction plan, the deficit will be eliminated by 2018-2019 for the first time in 18 years.

Declining deficit


Although the Government is on track, Deloitte states that the toughest decisions are yet to come, decisions that will involve public spending cuts that will implicate many public entities. According to the report, 80% of the entire deficit programme is to be achieved by cuts in public spending. The first round of which was announced in 2010 and a second in 2013, but still 43% of the cuts need to be made in 2015 to meet the requirements. As most public money is spend on social protection (30%), health (19%), and education (13%), these cuts could create resistance and a real challenge for the Government, but only if those cuts in spending are met, will public spending as a percentage of GDP return to its 2001 level.

Public money spend on

However, Deloitte and Reform do point out that reducing the deficit is not enough. The UK Government should also turn its attention to reducing its debt, as its public sector debt has multiplied by three in the past 10 years as a result of the Government borrowing money to fund its shortage in spending. In 2014-2015 the total of the UK Government’s public sector debt is £1.4 trillion, which is a staggering 79% of the GDP. This is again a 2% rise in GDP from last year, when the percentage of 77% or £1.3 trillion. The UK’s current debt level is the ninth highest in the EU as percentage of GDP, and at this point, the Government spends more on debt interest, £1 billion a week, than it spends on education. This issue must be addressed accordingly, say the researchers, as this debt creates excessive financial insecurity and a big burden to the tax payer.

Public Sector net debt


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