uk government debt. why did this cause a fuss? (2:08 – 2:17)
TRANSCRIPT
UK debt
0
100
200
300
400
500
1987
1990
1993
1996
1999
2002
2005
2008
2011
Year
Per
cen
t o
f G
DP
Government debt
Private debt
UK government debt
Debt: The total amount which is owed (not including interest payments)
Deficit: The gap between income and expenditure in one year (so the amount of new borrowing in one year)
How does the UK government borrow?
1) Bonds (92%): Borrow money in return for a document which says a certain amount will be repaid at a certain time, with a fixed interest payment every year.
Eg: Get £1,000 now, on promise to repay £1,000 in 10 years, plus £50 interest every year
How does the UK government borrow?
1) Bonds (92%): Borrow money in return for a document which says a certain amount will be repaid at a certain time, with a fixed interest payment every year.
Eg: Get £1,000 now, on promise to repay £1,000 in 10 years, plus £50 interest every year
2) National savings (8%): People deposit money in savings account which government can use. But government repays on demand when people want the money back.
UK government debt and deficit
Source: International Monetary Fund
-20
0
20
40
60
80
100
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Year
Per
cen
t o
f G
DP
Deficit
Debt
UK government deficit
Source: International Monetary Fund
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Per
cen
t o
f G
DP
Who is the debt owed to?
0
200
400
600
800
1000
1200
1400
2007 2012
Year
£ b
illi
on Bank of England
Domestic
External
What else would you want to know about a debt?
1) Interest rate
The UK government can currently borrow for:
5 years at 1.6%
10 years at 2.9%
30 years at 3.7%
Inflation: 2.7%
What else would you want to know about a debt?
2) Maturity
Average for UK debt is 14 years
Others:
United States: 5 years
Germany: 6 years
France: 7 years
What are possible ways of reducing your debt?
1) Cut spending and increase taxes (but may crash or stagnate the economy)
What are possible ways of reducing your debt?
1) Cut spending and increase taxes (but may crash or stagnate the economy)
2) Inflation
What are possible ways of reducing your debt?
1) Cut spending and increase taxes (but may crash or stagnate the economy)
2) Inflation
3) Growth