UK government debt. Why did this cause a fuss? (2:08 – 2:17)

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Presentation transcript:

UK government debt

Why did this cause a fuss? (2:08 – 2:17)

UK government debt

UK 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

UK government deficit Source: International Monetary Fund

Who is the debt owed to?

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

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 4) Default