In the second of a series putting current statistics into historic perspective, Rhymer Rigby explores the issue of national debt - how it accrues and the fight to keep it under control.
In New York City there is an electronic billboard on which the citizens can see that America's ever-escalating national debt is currently rising by over $6,000 per second. In the US national debt is a topic of dinner-table conversation and promises to reduce it are the stuff of election pledges. The British national debt, however, is a far less celebrated piece of public finance.
The national debt represents the total outstanding borrowings of the government exchequer - in short, what the government owes. The debt accrues from sources such as wars, the nationalisation of industries, borrowing to prop up exchange rates and the balance of payments, and national savings. Debt size in isolation is rather meaningless; it is debt as a percentage of gross domestic product (GDP) which is more indicative of a nation's financial health.
As the graph above indicates, since the 1830s, the UK's ratio of debt to GDP has varied from a low of under 30% to a peak of nearly 300%. It declined from an all-time high in the early 19th century (a result of the Napoleonic Wars) until the outbreak of the first world war, when the Government's wartime borrowing caused a rapid rise. A period of deflation - which penalises borrowers - caused further growth in the late 1920s and early 1930s. The ratio then fell briefly before increasing sharply as a result of the second world war. For countries wishing to shed their national debt, two ways forward are 'to lose a war or have hyperinflation', says Professor Charles Goodhart of the London School of Economics. 'As a country which has avoided both of these, Britain's debt/GDP ratio was one of the worst in the industrialised world in the late 1940s.' After the 1947 peak the ratio fell consistently and has now stabilised at around the 50% mark, putting the UK comfortably within the 60% Maastricht guideline. That Britain is now in a relatively enviable position has been due, in part, to the unexpected bonus North Sea oil provided, but sound control of the public purse - the present Government is committed to balancing budgets - has also played an important role. Comparisons with other countries bear this out: Britain and Japan are the only G7 countries to have reduced their debt ratios over the past 10 years. The problem is particularly acute in Italy, where high foreign borrowing, a notoriously inefficient public sector, and widespread tax avoidance have sent debt soaring. Canada, likewise, suffers from very high debt levels: payments consume a quarter of federal spending. Governments that regularly overspend face the possibility of spiralling debt levels and painfully high interest payments.
Although the British debt/GDP ratio has now reached an historically low level, at over £250 billion, the debt itself is no trifling figure. In this year's budget the Chancellor has pencilled in £24.5 billion, or 8% of government spending, for interest payments. Put in context this is over twice the Government's education expenditure and 12 times that spent on the environment. But this burden is not as onerous as it may seem. Interest payments (such as those paid on National Savings) manifest themselves as transfers within the economy, from tax-payers to those from whom the Government has borrowed.
In the UK, at least, the Government's borrowing appears to be under control, with further reductions a real possibility. But other countries are not so fortunate - the US government, $4.7 trillion in the red, is clearly happy to accept assistance from any quarter. A recently launched brand of ale, beguilingly called 'Billary' donates 25 cents from every case sold towards the US national debt. Small beer, perhaps, but President Clinton accepted one cheque personally.
Debt row: National debt as a percentage of GDP
Country % of GDP % of GDP Population GDP June 94 Debt per
June '84 June '94 (millions) (£bn) head (£)
Britain 54.4 52.5 58.1 660 5,960
Canada 59.1 87.1 28.2 350 10,810
France 43.8 61. 458.2 850 8,970
Germany 41.7 49.6 81.0 1,340 8,210
Italy 77.4 116.3 57.5 670 13,550
Japan 67.9 65.9 125.2 2,970 15,630
US 45.2 65.9 261.1 4,410 11,130
Source: OECD, UN. Figures are for June 1984 and 1994, or are the latest