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Britain’s crippling debt

21 August 2023

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Government debt often makes the headlines. When it goes up, opposition politicians cry foul at the government. And when the Chancellor wants to reduce it, we all know that an attack on wages and services is on the way.

But there’s more to debt than wayward or wicked governments. An informative article in the Daily Telegraph at the end of July outlined this fiscal fetter at the heart of the capitalist system in Britain.


A section of the Treasury, the Debt Management Office, essentially deals with one thing, the problem of Britain’s mountain of debt. Use of debt is nothing new and has always been part of the way of life for every country under capitalism.

But, according to the old fashioned approach, there was meant to be “careful husbandry of the gilts market so as to ensure a debt profile with a particularly long maturity”. In other words, manage the nation’s finances for the long term. That outlook no longer applies.

Out of control

The national debt has spiralled out of control. It now stands at more than 100 per cent of GDP, exacerbated by lockdown expenditures and expansion of quantitative easing (printing money). To make matters worse, Britain also is not increasing productivity and wealth creation as it should be, or was once.

The cost of servicing this pile of debt is breaking all records. Part of the reason it is doing so is that the coupon (interest rate) on a very high proportion of that debt, or around a quarter of the total, is indexed to the rate of inflation.


With today’s inflation rate, Britain’s exposure to these index-linked gilts means debt servicing costs are rising extraordinarily fast.

The UK is forecast to have the highest debt interest payments as a proportion of government revenues in the developed world this year – slightly more than 10 per cent, or around £110 billion in cash terms.


Apart from the financial players in this specific fiscal market who presumably are benefitting, this is of no use to the country and is a terrible harm. It is an economic drag and limitation on the real productive economy and vital infrastructure of Britain. Money spent servicing bondholders is money not available for other things and also displaces some services by squeezing the state allocation of funding.

‘Failure to anticipate rising inflation has contributed to the problem.’

The failure of the Bank of England or the Treasury to anticipate that inflation might eventually rise has contributed to the problem – and it’s their policies which have driven inflation, at least in part.

Within capitalism the corrective, to reduce inflation, means raising interest rates to a destructive level that ruins industry and working people’s standard of living. Why should we believe in such an inherently awful system?