U.K. national debt&quantitative easing

March 27, 2009 10:03 a.m.

There is a controversy in Britain over public indebtedness that needs clearing up asap. The head of the Bank of England is reported to be claiming quite falsely that Britain cannot afford another public stimulus package because debt levels are already too high. Instead of recognizing the severity of the downturn and the need for flexible and responsive policy the governor apparently is dogmatically clinging to the monetarist restrictions of the Maastricht treaty protocol on debt ratios. These values were always simply arbitrary values that reflected the now discredited   monetarist bias of the European central bank.

The Governor's argument is therefore nonsense.

The ratio of public sector debt to the G.D.P. in Britain is currently 41 %. The deficit is 2.7 % of the GDP.

During the second world war the debt ratio reached over 220 % of the G.D.P. In 1946 the national debt in the U.K. was £24,500 million while the national income was £8000 million.in other words the debt to national income ratio in 1946 was over 300 %.(See Paul Samuelson, Economics,   first edition, 1948, p432, table 1,:data source Statistical Abstract of the United Kingdom)

Once the war ended Britain gradually recovered and prospered. Modern Britain is far more prosperous than war-time Britain despite it having incurred such a large debt.

Britain sustained a debt load that was six times higher than it is at present.This debt load had been necessary for Britain to survive and help defeat Hitler. It was a constraint but it did not ruin the country. In fact it helped lay the foundations for Britain's future prosperity.

If the the Exchequer is experiencing any difficulty in selling longer term gilts because of irrational market fears the Bank of England should simply purchase some of them in order to ease these fears and push interest rates lower.There is plenty of room to manoeuver .

The Conservative opposition party   is simply making mischief . It is time for Mr. Brown to assert some pressure on the Bank of England to do its part in promoting a robust economic recovery.

The U.K. Bureau of Statistics report on Britain's indebtedness is reproduced below courtesy of the Government.


Government deficit as a percentage of GDP

Provisional estimates show that for the financial year 2007/8 the UK recorded a government deficit of £38.7 billion, which was equivalent to 2.7 per cent of gross domestic product (GDP). This reference value in the Maastricht Treaty's Excessive Deficit Procedure sets deficit and debt targets of 3 per cent and 60 per cent respectively for all EU countries. The UK's compliance is assessed on a financial year basis.

At the end of March 2008 general government debt was £614.4 billion, equivalent to 43.2 per cent of GDP.

These data were reported to the European Commission at the end of September 2008.

The data on Government deficit and debt under the Maastricht Treaty are calculated according to the ONS's interpretation of the 1995 European System of Accounts (ESA95) and a United Nations Statistical Commission decision on the treatment of government receipts for use of the electro-magnetic spectrum. ONS also publishes a separate deficit figure consistent with a Eurostat decision which treats these receipts differently.





Published on 30 September 2008 at 9:30 am  












  Press Release: Government deficit and debt under the Maastrict Treaty
Guide to Public Sector accounts
Data: Public Sector Finances
Press Release: Public sector finances
Article: Public Sector Statistics Revisions Policy
Time Series Data - UK National Accounts






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