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UK government debt Why did this cause a fuss? http://www.youtube.com/watch?v=BAT_RW693BQ (2:08 – 2:17) UK government debt UK debt 400 300 Government debt 200 Private debt 100 0 19 87 19 90 19 93 19 96 19 99 20 02 20 05 20 08 20 11 Per cent of GDP 500 Year UK government debt Debt: The total amount which is owed (not including interest payments) Deficit: The gap between income and expenditure in one year (so the amount of new borrowing in one year) How does the UK government borrow? How does the UK government borrow? 1) Bonds (92%): Borrow money in return for a document which says a certain amount will be repaid at a certain time, with a fixed interest payment every year. Eg: Get £1,000 now, on promise to repay £1,000 in 10 years, plus £50 interest every year How does the UK government borrow? 1) Bonds (92%): Borrow money in return for a document which says a certain amount will be repaid at a certain time, with a fixed interest payment every year. Eg: Get £1,000 now, on promise to repay £1,000 in 10 years, plus £50 interest every year 2) National savings (8%): People deposit money in savings account which government can use. But government repays on demand when people want the money back. UK government debt and deficit 100 Per cent of GDP 80 60 Deficit 40 Debt 20 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 20 07 20 09 20 11 0 -20 Year Source: International Monetary Fund UK government deficit 6 4 0 -2 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 Per cent of GDP 2 -4 -6 -8 -10 -12 -14 Source: International Monetary Fund Who is the debt owed to? Who is the debt owed to? 1400 1200 £ billion 1000 Bank of England 800 Domestic 600 External 400 200 0 2007 2012 Year What else would you want to know about a debt? What else would you want to know about a debt? 1) Interest rate The UK government can currently borrow for: 5 years at 1.6% 10 years at 2.9% 30 years at 3.7% Inflation: 2.7% What else would you want to know about a debt? What else would you want to know about a debt? 2) Maturity Average for UK debt is 14 years Others: United States: 5 years Germany: 6 years France: 7 years What are possible ways of reducing your debt? What are possible ways of reducing your debt? 1) Cut spending and increase taxes (but may crash or stagnate the economy) What are possible ways of reducing your debt? 1) Cut spending and increase taxes (but may crash or stagnate the economy) 2) Inflation What are possible ways of reducing your debt? 1) Cut spending and increase taxes (but may crash or stagnate the economy) 2) Inflation 3) Growth What are possible ways of reducing your debt? 1) Cut spending and increase taxes (but may crash or stagnate the economy) 2) Inflation 3) Growth 4) Default