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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