You might have seen the news in September that national debt had hit 100% of GDP (the value of the country’s annual economic output).
It was the first time this has happened since the 1960s, according to the Office for National Statistics (ONS).
But what is national debt and why should you care? Well, basically…
National debt is the total amount of money the public sector owes. The public sector includes central government, local government, the Bank of England and other public corporations.
How big is the national debt?
Public sector net debt was £2.77trn at the end of August.
You may also see some analysts and officials use the figure £2.55trn, which is debt excluding the 8% held by the Bank of England.
This is because the Bank is part of the public sector, meaning interest paid on government loans technically never leaves the public sector.
The Bank-owned debt – worth £222bn – largely represents loans taken out by the government in the wake of the 2008 financial crisis and the COVID pandemic.
Why is debt expressed as a percentage of Gross Domestic Product (GDP)?
If an organisation borrowed £10m and earned £100m in the same year, its debt (10%) would be considered more reasonable than one that borrowed £50m (50%).
Instead of earnings, GDP is used as a measure as that is the total value of everything the UK produces.
Wealthier countries are able to sustain a higher level of debt.
Who do we owe money to?
The majority of UK debt is owed to the UK private sector, especially insurance and pension funds.
The Bank of England, as we just mentioned, also owns 8%.
Overseas investors hold approximately 25% of UK debt, the second highest in the G7, according to a report by the House Committee of Public Accounts in March.
Limited information is held by the Treasury or the government’s Debt Management Office on those investors.
This is because government bonds are traded multiple times by different investors.
Bonds themselves are a means of turning debt into a financial asset that can be traded. It effectively represents a promise by the government to pay back whoever owns the bond – and any interest accrued.
Interest
Public sector debt comes with interest that needs to be paid every year.
The more debt, the bigger the interest payments, and most of these are made either by central government or by the public corporations sector in relation to funding pension schemes.
In 2024-25, the Office for Budget Responsibility (OBR) expects interest spending to total £89bn, or 7.3% of total public spending.
How do other countries compare?
According to the International Monetary Fund (IMF), there are 16 countries with a higher debt as a percentage of GDP than the UK.
Among them are Japan (255%), Greece (159%), Italy (139%), the US (123%), France (112%) and Spain (106%).
At the other end of the table is Sweden (36%), Switzerland (37%) and Norway (38%).
Read other entries in our Basically series…
