How Much Money is the UK Government Borrowing, and Does It Matter?
The UK government borrows money primarily to fund day-to-day spending and long-term infrastructure projects, such as Crossrail and new railways. Governments typically spend more than they raise through taxes, creating a gap that needs to be filled.
To cover this gap, the government has a few options:
- Raising taxes – This can reduce the disposable income of citizens, affecting spending and potentially harming businesses.
- Cutting spending – This can reduce public services, affecting everything from healthcare to education.
- Borrowing money – This is a common solution, especially to support large projects that are expected to stimulate the economy.
How Does the Government Borrow Money?
The government borrows by issuing bonds (known as gilts in the UK). These are financial products that promise to pay the buyer back with interest at a future date. Investors, such as pension funds, banks, and insurance companies, buy these gilts, believing they are a safe investment.
The interest payments on these gilts represent the cost of borrowing for the government, and they fluctuate based on interest rates set by the Bank of England.
How Much Is the UK Government Borrowing?
The government’s borrowing fluctuates month by month. For example, it borrows less in January when a large portion of annual tax payments is received. To get a better sense of the overall borrowing, it is useful to look at the year-to-date figures.
- For the financial year ending March 2024, the UK government borrowed £125.1bn.
- November 2024 saw borrowing of £11.2bn, £3.4bn less than November 2023.
- Since March 2024, the total borrowing stands at £113.2bn, which is the third-highest amount since records began in 1993.
National Debt: How Much Does the Government Owe?
The UK’s national debt is currently about £2.8 trillion—roughly equivalent to the country’s Gross Domestic Product (GDP). This debt level has doubled since the 1980s, largely due to the financial crisis of 2008 and the Covid-19 pandemic, which both put pressure on government spending.
However, despite its size, the UK’s national debt is relatively low in comparison to other leading economies, and debt levels in relation to GDP are lower than during much of the 20th century.
How Much Does the Government Pay in Interest?
As the national debt grows, so too does the amount the government must pay in interest. The government’s interest payments have become more significant as the Bank of England raised interest rates. However, in November 2024, the UK government’s interest payments on the national debt were £3bn, the lowest for November in five years.
While this drop is welcomed, the government still faces the challenge of balancing its budget. If more funds are allocated to paying off debt, it reduces the money available for public services like healthcare and education.
Does Government Borrowing Matter?
Government borrowing is a complex but crucial part of the UK’s economic strategy. While borrowing is necessary to fund long-term projects and respond to economic challenges, it comes with costs, especially in terms of interest payments. The government must carefully manage its borrowing to ensure that debt levels remain sustainable without compromising essential services.