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UK National Debt: Why Do We Keep Borrowing?

Added on: 13th March, 2018 by Ann_44062

UK National Debt: Why Do We Keep Borrowing?

Last Updated:
Wed, 16 May 2018

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The national net debt has reached a maximum point in January 2018. Why does the UK live in debt and what are our perspectives on bringing the debt down?

The UK Chancellor of the Exchequer, Philip Hammond, has recently reported that the national net debt of the United Kingdom equals £1.7 trillion (according to the latest ONS data:

"We have a £1.7 trillion debt with the £62 thousand of household debt. The level of borrowing is still too high."

He added that the government is doing everything possible to find a way out of this situation. Also, Hammond gives hope that in the next three years the GDP growth will be 2%. As he says, they expect a 1.6% growth in 2018, 1.7% in 2019, and 1.9% by 2020.

Why Does The UK Live In Debt?

When it comes to the overall consumer debts, including household (credit cards, mortgages, auto loans, payday loans), the situation doesn’t seem promising. The total debt of UK consumers rose 7.35% between 2012 and 2017.

Consumers are likely to purchase essentials for credit. More UK residents turn to banks or other lending companies to get a payday loan. The 2015 Competition & Markets Authority (CMA)’s Payday lending market investigation report figured out several reasons why UK residents take this type of loans.

Around 52% of customers used the short-term lending products because of an increase in expenses. 19% of the surveyed were forced to borrow because of their income decrease. Among the other 29%, most of the customers confessed they experienced financial circumstances.

But how does a UK national net debt keep going higher when Tories claim the deficit is being reduced year by year? The reason is people don’t know there exists a difference between a net debt and a deficit.

Net Debt VS Deficit Difference

The deficit is what the UK borrows every year from April to March. So everything that we borrow throughout the year is added to the deficit. In case of the income excesses over expenses, we call it a surplus. The UK hasn’t been in the surplus ‘stage’ for years.

As the financial year ends, we add the deficit to the overall national net debt and technically start the new year with a zero deficit.

According to the recent updates, the deficit is indeed going down. But this does not mean the national debt will go down together with the deficit. In 2017, the deficit year reached £37.7 billion.

Now let’s talk about the national debt

Since the United Kingdom joined the EU, you can see how our membership in the European Union has “positively” influenced our debt situation. The drastic increase of our net debt began in 2008 as the world crisis hit.

The recent statistics (made at the end of January 2018) shows the maximum number in the recent 25 years - more than £1.7 trillion of a national net debt. The debt is huge and the government has to pay the interest. Currently, the interest payment in 1 week equals £1 billion.

Is it possible to end up the national debt one day? Technically yes. We can get the deficit down to zero and start generating a surplus to pay off the debt step by step. But will it happen any soon especially when Labour government spends more on socialist plans?

Socialists probably think the national debt will suddenly disappear before they get the votes. But whatever games Conservatives and Liberals are playing “out there”, it’s important they keep the national net debt at an acceptable number.

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