The UK national debt has soared to 100% of the country’s GDP, marking the highest level since the 1960s. This milestone poses a significant challenge for Chancellor Rachel Reeves as she prepares for the upcoming budget, scheduled for the end of October.
According to figures from the Office for National Statistics (ONS), the UK’s debt as a percentage of gross domestic product (GDP) rose by 4.3 percentage points over the past year, culminating in a debt level equivalent to the nation’s entire economic output.
In August alone, government borrowing—the difference between public sector expenditure and income—stood at £13.7bn, which is £3.3bn more than in the same month the previous year. This deficit also marks the third highest August shortfall since the ONS began monthly records in 1993.
Tough Decisions for the Government
Darren Jones, Chief Secretary to the Treasury, commented that these figures reflect the “challenging state of public finances” inherited from the previous Conservative government. He emphasised that Labour would need to make “tough decisions” in order to rebuild the economy.
“When Labour came into office, we inherited an economy that wasn’t working for working people. Today’s figures reveal the highest borrowing in August on record, outside of the pandemic. Debt now stands at 100% of GDP, the highest level we’ve seen since the 1960s,” Jones stated.
As pressure mounts ahead of the 30 October budget, the government faces calls to reconsider planned tax hikes and spending cuts. Labour Leader Keir Starmer has warned the public to prepare for “painful” decisions after discovering what Labour claims is a £22bn shortfall in public finances.
Planned Cuts and Economic Impact
In response to this financial gap, Rachel Reeves has already announced significant cuts. Among them is the scrapping of winter fuel payments for most pensioners, shelving plans for social care reforms, and axing several road, rail, and hospital projects. These measures are the initial phase of Labour’s plan to reduce borrowing and balance the books.
However, some within Labour worry that this focus on fiscal restraint could harm the government’s image. Economists, too, have voiced concerns that such actions could damage consumer confidence, ultimately stalling economic growth and affecting jobs.
Consumer Confidence Takes a Hit
These concerns seem well-founded, as the data company GfK recently reported that consumer confidence in the UK has fallen to its lowest level since March. This drop is attributed to the government’s decision to eliminate winter fuel payments for all but the poorest households and the anticipation of further difficult decisions.
Despite rising tax receipts in August, government spending outpaced income, largely due to increases in benefit payments and the higher costs of running public services. This rise in costs is linked to inflationary pressures on wages and non-labour expenses.
UK National Debt – Looking Ahead
The ONS report notes that while official estimates placed debt above 100% of GDP last year, revisions show that this is the first time since 1961 that national debt has equalled the size of the economy. The government’s fiscal position remains precarious, with further public spending likely in the coming months, driven by the need to fund higher public sector pay and address cost overruns across various departments.
According to Matt Swannell, Chief Economic Adviser to the EY Item Club, “The UK’s fiscal situation remains challenging at the halfway point of the fiscal year. Treasury analysis suggests the situation may deteriorate further as the year progresses.”
