The UK has just hit a new and totally unwanted milestone as the country now owes more money than its entire economy is worth. And it’s only going to grow as government borrowing continues to soar.
It’s a major symbolic moment but one that is in danger of getting lost, as the cost-of-living crisis rages unchecked and homeowners panic over how they’re going to pay their soaring mortgage bills.
The government continues to spend a lot more than the nation collectively earns, forcing it to fund everyday spending by borrowing money.
Heaps of it.
In May, the public sector spent £20billion more than it received in taxes and other income, forcing it to plug the shortfall by borrowing yet more money.
That’s more than double the £9.4billion it borrowed in May last year, according to latest official date.
The only time we borrowed more in May was in 2020, during the first Covid lockdown, when then Chancellor Rishi Sunak splurged on furlough, PPE and a host of other pandemic one-offs.
Public sector net debt at the end of last month stood at a mind-boggling £2.567trillion, which is 100.1 percent of the country’s gross domestic product (GDP).
This is the first time it has topped 100 percent since way back in March 1961, when we were still paying off war debt.
While the Office for National Statistics says the figure is “highly provisional” and may be revised, the direction of travel is clear.
National debt is poised to hit £3 trillion in just two years.
The only consolation is that a handful of countries are ahead of us, notably France, which has a government debt-to-GDP ratio of 111.4 percent, and Italy at 140.3 percent.
We’ve all grown so accustomed to the UK owing trillions that it’s scarcely remarked upon, when we should be worried stiff.
Our rising debt mountain is getting ever costlier to service, as interest rates and gilt yields rocket. The cost is expected to hit an eye-watering this £115billion this financial year, according to the Office for Budget Responsibility (OBR).
That’s more than the £112.5billion we spent on the state pension in the 2022/23 tax year.
So instead of boosting the state pension, slashing NHS waiting list or cutting taxes, we’re paying a small fortune servicing our borrowing costs.
The UK is particularly vulnerable because much of our debt is linked to inflation, and the cost of it rises with prices.
Which you may have noticed are rocketing now.
The ONS blamed the rise in borrowing on increases to the state pension and state benefits such as universal credit and child benefit.
These all climbed by 10.1 percent in April to match increases in living costs.
Chancellor Jeremy Hunt pledged in his March budget to meet his fiscal rule of having debt falling as a proportion of the size of economy in five years’ time.
We’ve heard it before. In every Budget since the financial crisis, the Chancellor of the day has set out optimistic debt redemption plans, but they’re never achieved.
READ MORE: More public spending today just means more misery for our kids tomorrow
Taxes may be at a 70-year high – and set to rise even higher – but it’s still not enough.
As the nation gets sicker and older, the shortfall will grow. We’re a nation in denial. So are France, Italy and even the US, but that doesn’t make it right.
There was even a trendy economic theory kicking around for a time claiming that debt isn’t a problem and the UK can borrow as much as it likes.
Modern monetary theory (MMT) stated that governments can print and spend money limitlessly.
Deficits don’t matter. Neither does the national debt. Central bankers can always print more money.
It had its adherents on the left who saw it as a licence to spend, spend, spend.
Yet Tory governments and the Bank of England are the ones who have been putting it into practice by borrowing billions and printing even more, to bail out first the bankers, then the rest of us.
We see the results as inflation rips out of control and the our debt grows and grows.
When a character in Ernest Hemingway’s novel The Sun Also Rises was asked how he went bankrupt, he famously replied: “Two ways. Gradually, then suddenly.”
Today, we’re going bust gradually. Guess what bit comes next.
