Annual government borrowing is expected to be around £178 billion (or 12.6% of GDP). This is being added to the total national debt (accumulated over many years) of £848.5 billion.
Reasons To Be Worried over UK Economy
- The annual deficit is a record level for peace time. (We have had higher annual deficits, but, only in wartime)
- In past few weeks, political uncertainty - prospect of hung parliament have made markets worry we don't have a concrete plan for reducing debt after election. This market uncertainty has caused the pound to have a rough weak.
- Sluggish nature of economic recovery suggests tax receipts will be slow to rise. Reducing deficit too quickly could push economy back into recession.
Reasons Not To Be Worried.
- We've Borrowed much more in the past.
See also: UK National Debt
- The UK has had periods of much higher national debt in the past. Government borrowing was over triple current levels in 1950. In the late 1940s we set up the NHS, welfare state and laid foundation of longest economic periods of expansion on records. Debt doesn't have to be a constraint on growth. (Though debt certainly doesn't guarantee growth - just look at Japan since 1990s)
- Political uncertainty is somewhat misplaced. There is no guarantee of a hung parliament. And even with a coalition I think parties may be able to find consensus on reducing deficit.
- British debt levels started from a lower level. Other countries have much higher debt levels such as Italy and Greece over 100% of GDP. see: list of national debt by country.
- If the economy does recover, then annual borrowing will fall. The return of bank profits and bank bonuses may seem unfair - but, it is actually good news for the fiscal position because we will get more income tax. True there is still a structural deficit. But, it is good economic sense to allow borrowing to increase during a recession - see: Should we worry about national debt?
- Interest rates are low. Interest rates are low in the UK, meaning the cost of financing national debt is low. The rate on long term gilts (30 years) is 4.1% (and it's fallen since the start of 2010) This means we spend a relatively small percentage of GDP on debt financing.
- Debt maturity. The average UK debt maturity is 17 years. This is a much longer time period than other countries and means we have to refinance a small % of debt than before.