We should be cautious in adopting public debt as a true indicator of economic health.

In our view, public spending and public debt are not inherently problematic – although this is fiercely contested across the political spectrum, and is certainly not the view that pertains at the centre of the present economic orthodoxy in HM Treasury and the City of London.

Other considerations are often conflated with the issue of public debt, such as the effects of the tax burden and of whether there is value for money in public services.

There is a genuine political issue around the question of the – accurate – perception that Britons are not recipients of the benefits of high-quality public services commensurate with their present tax burden – a political struggle that goes back to the origins of the modern state and accompanying efforts to limit the tax-raising powers of absolutist monarchs by merchant classes via fiscally sovereign parliaments. This was the context in which the Bank of England was originally created under William III in 1694, and there has been a continuous public debt in the modern sense ever since.[26]

Public debt, as Barry Eichengreen and his co-authors point out in their book In Defense of Public Debt, has historically had vitally important uses, including the ability of governments to finance emergency responses to wars and pandemics or to lay the foundations of essential public goods and services such as health, education, and transport.[27]

But there is also the matter of the servicing of that debt. In a low-growth environment such as Britain has experienced for the last several decades, debt repayments are understood as constraining other spending and investment not just politically (i.e. the fiscal rules) but also economically.

As a feature of current institutional arrangements, and in the absence of widespread public comprehension of the existence of alternative monetary arrangements such as direct monetary financing, the public debt is widely perceived to be an insupportable burden.

Alternative approaches to macroeconomic management are precluded politically by the persistence of orthodox economic doctrine and media recourse to the “household analogy” in public finances – the mistaken belief that taxes “pay for” public spending, and that “the books must balance” for the economy as a whole as for any given household or business within it. [28]

In fact, it has been clearly established in a step-by-step walk-through of everyday UK monetary operations that the government first spends into the economy and only later taxes back or issues debt: “public expenditure is always financed through money creation rather than taxation or debt issuance.”[29]

That said, we are unlikely to see a revolution in public understanding of macroeconomic management in the near term, and therefore the public debt currently operates as a continuing political constraint on UK economic policy options, including social spending.

Currently, Britain is projected to spend ₤111.2 billion in interest payments on its public debt in 2025-26 (8.3% of total public spending and over 3.7% of GDP).[30]

Public sector net debt (as a percentage of GDP) fell dramatically in the postwar period, and stood at 54.7% in 1970-71. It subsequently fell even lower, hitting 21.6% in 1990-91, before increasing dramatically in the past two decades to its current level of around 94%. This increase has been fueled by a combination of increased borrowing, low growth, and – more recently – the return of high interest rates in the period since the COVID-19 pandemic and Ukraine War energy price shock.

Although UK national debt has been much higher (as a share of national product) in earlier periods, such as the Napoleonic Wars and the periods following the two World Wars, at present levels it is high by peacetime historical standards.