Just like baggy jeans, it’s fashionable once again to be concerned about the public finances. For years, politicians tricked themselves into believing that low interest rates would continue in perpetuity, making the national debt little more than a very large number on a screen, without actual real-world ramifications. The spending taps could be turned back on after the grinding austerity of the Cameron years.
That’s all changed. Debt interest payments are now costing taxpayers over £100 billion per year, driven by higher interest rates. Debt is now at 100% of GDP and the OBR is forecasting it to almost triple in the next 50 years.
Yet despite these storm clouds, Rachel Reeves is set to change the fiscal rules to free up billions of pounds in additional borrowing. Keir Starmer could do with opening the history books and stopping his Chancellor before it’s too late.
A recent history of the national debt
Both prime ministers and monarchs have had issues with debt going back centuries. It’s certainly not a novel phenomenon. But in recent decades, the national debt has seen as seemingly inexorable rise, as new research from the TaxPayers’ Alliance has examined. From 1997-98 to 2023-24, public sector net debt excluding the Bank of England increased by 273% in real terms, from £658bn to £2.45 trillion. The debt interest in real terms has increased from £22bn in 1955-56 to £102.2bn in 2023-24, an increase of 358%. Of the last six prime ministers (excluding Liz Truss), almost all oversaw an increase in the national debt.
The greatest culprit was Gordon Brown, whose effective blank cheque during the financial crisis led to the national debt increasing by 33.6%, or £283bn in just one year in 2023-24 prices, the largest increase in a single year since 1997-98. In total, the debt rose by a whopping £589.5bn, or 69.8% under Brown. Brown also has to bear some responsibility for the £157.7bn or 24% increase in the national debt under Tony Blair given his role as Blair’s Chancellor.
David Cameron was the second worst culprit in absolute terms, with the national debt increasing by £384bn, although in percentage terms it rose marginally higher under Blair (24% compared to 23.8%). Cameron has the not unreasonable excuse that he inherited a yawning deficit, meaning that no matter what progress he made, there was always going to be a significant spike.
Boris Johnson comes in third in absolute terms, with a £376bn increase, and fourth in percentage terms, at 19.3%. Like Brown, Johnson’s blank cheque to the population during the Covid pandemic, whatever the logic at the time, dealt a hammer blow to the public finances.
In what surely must be one of her greatest achievements as a prime minister, Theresa May was the only one under whom the national debt fell, by £62.1bn in absolute terms, or 3.1% in percentage terms. A combination of economic growth, a continuation of Cameron’s deficit-cutting programme, the sale of government assets including Royal Bank of Scotland shares and low interest rates helped pay off some of the government’s credit card. But as mentioned, her successor certainly undid all of that.
What next?
Decisions by successive prime ministers have left the public finances in a horrendous mess. The risks of this debt spiral are clear. With reduced fiscal flexibility, the UK could struggle to respond to future crises – whether another financial meltdown, a public health emergency, or demands for vital public service investment. Skyrocketing debt interest payments, already among the Government’s largest expenditures, will only exacerbate the pressure, potentially crowding out other essential services.
Rachel Reeves may be tempted to loosen the fiscal rules to fund immediate priorities, but the long-term health of the nation’s finances cannot be ignored. To genuinely address the debt crisis, both current and future governments must adopt a credible long-term strategy. Otherwise, the burden will only grow, passing on an increasingly heavy debt load to future generations.
In short, the real black hole in the UK’s finances isn’t the £22bn cited by the current Government – it’s the looming £2.5trn national debt. And without a serious plan to address it, the hole will only deepen.
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