I think there are a few reasons.
1. People Always Imagine the Worst
I think if you went to France, Italy, US, Ireland, people in those countries would probably think they have the worst state of public finances. It is the nature of the national media to exaggerate the extent of economic problems. It hardly makes a good headline to say:
'UK National Debt increases, but, is still significantly less than our main international competitors'Rapid Deterioration.
One thing about the UK public finances, is that although National debt is 'relatively' low, next year will see a rapid deterioration. In the next financial year, Government borrowing is estimated to be £115bn or 8% of GDP. This will increase National Debt from £512bn to £627bn - that's a pretty rapid increase. Because growth is negative, national debt as a % of GDP will jump significantly. If the recession continues, it could be very difficult to prevent a continued rise in public sector debt as a % of GDP. Germany by contrast has worked hard to improve its fiscal position. Even though it is in recession, they somehow have managed to balance the budget. (They should now pursue expansionary fiscal policy and borrow more, but, they have become rather proud of their balanced budget.)
Claims UK Debt is Alot Higher
The Institute of Fiscal Studies claims public sector liabilitie is a lot higher - if the government includes PFI Initiatives and public sector pension liabilities. Therefore, because of this some suggest the true level of public sector debt is already over 100% of GDP. However, this is to confuse net debt with net liabilites. They are just liabilities - they have not incured borrowing yet. However, it is a guide to the future strains on public finances the UK may face. You can see IFS report here -pdf
- Also, it should be remembered other countries have similar pension liabilities. Countries like Japan and Italy will face much more pressure on public finances because there demographic trends are much worse than the UK. See global demographic trends
Low Savings in UK
The UK could not cope with national debt of 195% of GDP like in Japan. Japan can cope because it has very high levels of personal savings. Therefore, people are willing to buy the government's debt. The UK doesn't have the necessary level of savings for government to borrow 195% of GDP. However, as the recession bites, savings are increasing, and at current levels, the government will be able to finance the increased levels of public debt.
The UK situation is bad, government borrowing is increasing very fast. But, the UK is not facing imminent bankruptcy as some of the shrill tabloid headlines would like us to believe.
It is difficult to compare countries public sector debt, but, it also worth examining the cost of paying interest on the public sector debt. Last year UK spent £31bn on interest payments - Alot, but, still affordable.