Debt statistics 2015
|Overall international debt burden (% of GDP)||31.57|
|Government payments on foreign debt (% of revenue)||4.6|
|Government foreign debt (% of GDP)||24|
|Private foreign debt (% of GDP)||645|
|IMF and World Bank debt cancellation ($ billions)||0|
|Country case studies||Yes|
Country case study
For over thirty years financial deregulation has created a huge financial sector in the UK economy, and consequently a gigantic private sector debt. This process has been part of a continuing increase in inequality. Deregulation in the 1980s led to a bust in 1989. But the banking sector returned to borrowing large amounts from overseas during the long boom of the late 1990s and 2000s, when incomes of the richest 2 per cent rose dramatically quicker than everyone else’s. This banking borrowing and lending binge helped create the global financial crisis of 2008, crashing the UK economy. Since 2010 the government has brought in a widespread austerity programme, particularly targeting welfare payments, despite having a relatively low external debt itself. The economy has stagnated, and inequality has continued to increase.
After the oil price spikes and inflation of the 1970s, the UK deregulated financial services, alongside widespread privatisation and liberalisation of the economy. In 1979 all regulations on the movement of money across the UK’s borders were removed, and in 1986 many regulations on the financial sector were removed, known as the ‘Big Bang’, allowing greater lending and risk taking.
The changes in 1986 led to a large inflow of loans and capital into the banking sector and country, helping fuel a boom in house prices, which bust in 1989. The ensuing recession ended when speculators forced the pound out of the European exchange rate mechanism, the forerunner of the Euro, in 1992. Devaluation helped the economy to recover. Throughout this time, there were big increases in inequality, with the richest 20 per cent seeing their incomes rise three times faster than the poorest 20 per cent.
A longer and bigger boom began from the late-1990s, again fuelled by large inflows of loans and capital, especially to the banking sector. Inequality remained high and, whilst it did not increase at the same rate as in the 1980s and 1990s, there continued to be much faster growth in income for the richest 2 per cent. The inflow of foreign capital also pushed the UK’s currency higher, making it more difficult for other industries such as manufacturing.
By 2004, the foreign owed debt of the private sector was over 250 per cent of GDP, and it kept increasing to 440 per cent by the start of 2008 (foreign debts were also owed to UK banks). In contrast, the foreign owed debt of the government was just 7 per cent of GDP in 2004, increasing to 15 per cent by 2008.
In 2008, the long boom bust, when banks began to accept they would not get back significant amounts of the money they had lent; both overseas and in the UK. The global financial crisis also reduced the amount of new loans to British banks, contributing to the recession. The banks were bust and the government bailed them out by taking on more debt itself. Since the crash of 2008 and 2009, the British economy has stagnated.
The UK government’s debt increased from 38 per cent of GDP in 2007 to 83 per cent by 2012, caused by the economic collapse, bank bailouts, fall in tax revenues and increase in welfare payments. As banks stopped lending new money, and people and companies rushed to pay off their debts, the government effectively stepped-in to prevent the crisis being even worse.
However, today the UK government’s total debt to foreigners is still only 29 per cent of GDP. A similar amount is owed to the UK government itself – the Bank of England – after the central bank printed £375 billion to buy UK government debt (known as quantitative easing). The remainder is owed to savers in the UK, such as pension funds. In contrast, the UK’s private sector has a huge debt to the rest of the world of 395 per cent of GDP (with a similarly large amount owed to it). Consequently, the UK remains at extreme risk of the flows in and out of international capital, and the destruction these can cause in their wake.
Despite being able to borrow at record low interest rates, in 2010, the UK government increased VAT and began cutting public spending. However, with austerity maintaining economic stagnation, in 2012 the government deficit was still 8.3 per cent of GDP, down from 11.4 per cent at the height of the crisis in 2009, and an increase on the deficit level in 2011. And whilst the economy has stagnated, large inflows of capital have begun again; in 2012 the UK had its worst current account deficit since 1989. The UK is an increasingly unequal country with its economy dominated by the interests of the financial services sector.
In 2013, even the IMF said that the UK government should reverse its extreme austerity. As economist Ha-Joon Chang has said “being told by the IMF to go easy on austerity is like being told by the Spanish Inquisition to be more tolerant of heretics … Current policies in the UK and other European countries are really about making poor people pay for the mistakes of the rich.”
 Chang, H.J. (2013). Watch out, George Osborne: Smith, Marx and even the IMF are after you. The Guardian. 08/05/13. http://www.guardian.co.uk/commentisfree/2013/may/08/osborne-marx-imf-austerity-democracy