It's worth reading the OBR's July 2023 report (it's long but still worth skimming through). The (Tory supporting multi billionaire owned) media is taking the UK into an unreality, a lot of the stories that dominate the news are inane and irrelevant bullshit: Royal family/Farage's bank account/Schofield/Edwards. It makes reading about reality in some dry document worthwhile.
In a serious country some of these facts would exist in the public debate, rather than weeks of playing "guess the paedo".
https://obr.uk/docs/dlm_uploads/Fiscal_ ... y_2023.pdf
Page 3:
"The 2020s are turning out to be a very risky era for the public finances. In just three years,
they have been hit by the Covid pandemic in early 2020, the energy and cost-of-living crisis
from mid-2021, and the sudden interest rate rises in 2022, whose consequences continue
to unfold. This rapid succession of shocks has delivered
the deepest recession in three
centuries, the sharpest rise in energy prices since the 1970s, and the steepest sustained rise
in borrowing costs since the 1990s. And they have pushed government borrowing to its
highest level since the mid-1940s, the stock of government debt to its highest level since the
early 1960s, and the cost of servicing that debt to its highest since the late 1980s. "
Page 16:
"
The ageing of the population is projected to reduce the ratio of the working age to
retired population from four-to-one to three-to-one over the next 50 years, despite an
upward revision to assumed levels of net inward migration from 129,000 to 245,000
a year in steady state"
Page 99:
"Over the first 23 years of this century, public sector net debt in the UK has trebled as a
share of GDP from under 30 per cent in 2000 to around 100 per cent this year – a 62-year
high."
"In the UK and many other advanced economies, debt levels have reached generational
highs not only due to the upward pressures exerted by these shocks but also the challenges
governments have faced in trying to reduce debt following these shocks. Fiscal tailwinds
from a post-World War II baby boom, global economic integration, and easing of Cold
War tensions have switched to headwinds in the first part of this century. Public finances are
now under growing pressure from ageing populations, disappointing economic growth, a
warming planet, and rising geopolitical tensions."
Page 100:
"During the latter half of the 20th century, the UK also experienced periods of rising debt –
most notably during the early 1970s energy crisis, the early 1980s recession, and the early
1990s recession.
Yet, these episodes were typically brief, intermittent, and reversed within a
few years. And so, overall and in most years, the history of the second half of the last
century was one of falling debt, with public sector net debt falling by an average of 4.2 per
cent of GDP a year between 1946 and 2000. This relatively consistent decline in post-war
public indebtedness was facilitated by a confluence of economic and fiscal tailwinds."
Page 104:
"
Since the last time the UK government had a debt of 100 per cent of GDP, the share whose
value is directly linked to inflation has gone from zero to one-quarter, the highest share of
inflation-linked debt of any G7 country. ILGs were first issued in the UK in the early 1980s
and their share of total UK gilts increased from 16.4 per cent in 1990, to 23.2 per cent by
the start of the century, and then sharply to a peak of 31.2 per cent by 2008 (Chart 4.4). A
combination of high primary issuance (averaging 23 per cent of total gilt sales in the early
2000s), the increase in the principal owed due to inflation, and the relatively long maturity
of ILGs, caused their share of the overall stock of gilts to steadily increase. In 2018, the
Treasury estimated that continued issuance at these then-prevailing levels would eventually
mean that ILGs made up about 40 per cent of the stock.6 As this debt has been issued at
low real yields it helped to keep the UK’s real cost of servicing its public debt low. But when
inflation rises, as it has recently, the debt interest cost rises fast. "
Page 105:
"This level of inflation sensitivity in the Government’s debt stock is historically unprecedented,
as there were no ILGs in issuance when debt was last at 100 per cent of GDP in the early
1960s, and issuance had only just begun the last time annual RPI inflation was in double
digits (at 11.9 per cent) in 1981.
The UK Government’s degree of debt indexation is also
unusual among advanced economies. As Chart 4.5 shows, the UK has over twice the
proportion of inflation-linked debt than the next largest inflation-linked issuer, being Italy at
12 per cent."
Page 106:
"
The UK Government’s high level of debt and the high share of ILGs meant that the high
inflation of the past two years has sharply increased both debt interest costs and the stock of
debt itself. Expenditure on central government debt interest (net of the APF) increased by
£89 billion (3.4 per cent of GDP) due to the impact of inflation on the interest costs from the
stock of ILGs across 2021-22 and 2022-23. This was more than half of total central
government interest costs in those years. And while the inflation-linked increase in the
principal value of ILGs does not generate an immediate cash outflow (since it is paid in the
future when the ILG in question is redeemed), it does cause an immediate increase in the
cash value of outstanding debt, and, to the extent that RPI inflation exceeds growth in
nominal GDP, an increase in the debt-to-GDP ratio too.
With current Government plans
consistent with debt remaining high and the stock of ILGs also relatively flat, the
comparatively high sensitivity of interest costs to inflation will persist"
Page 109:
"
Over the last two decades, the share of UK sovereign debt in the hands of private foreign
investors has doubled and is now the second highest in the G7. The UK Government has
historically benefitted from a broad and deep pool of domestic investors for its debt. These
principally took the form of institutional investors such as private pension funds and
insurance companies, for whom long-dated gilts were a good match for their own longdated,
sterling-denominated pension liabilities.
These stable domestic institutional investors
kept the share of foreign private ownership in the UK the lowest in the G7 after the US and
Japan (Chart 4.7). However, foreign private ownership of UK debt rose significantly in the
early part of this century from around 13 per cent in 2004 to 25 per cent in 2022. With the
European Central Bank purchasing significant shares of German, French, and Italian
government debt in the meantime,
this leaves the UK with the second-highest proportion of
its sovereign debt in foreign, non-official hands in the G7, behind France."
Page 110:
"As the stock of foreign holdings of UK debt has risen this century, so have questions about the
risks of increasing, relatively high, levels of these holdings.
Foreign privately owned UK debt as a
proportion of total debt has almost doubled to 25 per cent since 2004 and is now well above the
advanced economy average of 18 per cent. "
Page 114:
"However, the rise in global inflation since the pandemic has delivered little net benefit to the
UK public finances relative to the inflation surprises of the past. This is partly because
this
most recent inflation shock has been closer to a pure ‘terms of trade’ shock, in which the
rise in the prices of the things the UK imports and consumes (manufactured goods, energy,
and food) has far outstripped the rise in the prices of the things the UK produces and
exports (mainly services)."
"The gaps between the annual rates of increase in the GDP deflator and both RPI and CPI
were the largest on record (since 1949). Combined with the higher stock of ILGs (which
respond to RPI) and the short effective maturity on debt (which has meant interest rate rises
have fed through quickly), this has meant the fiscal benefit that the public finances have
derived from this latest round of inflation has been muted compared with the more
domestically driven inflation shocks of the past century.
In fact, 2022 is one of only three
peacetime years since the early nineteenth century in which CPI inflation exceeded 9 per
cent and debt did not fall as a share of GDP."
Page 126:
"
Overall, the increase in our net migration assumption from 129,000 to 245,000 per year has led to a 1.1 and 30 per
cent of GDP reduction in the primary deficit and net debt by 2072-73."
Page 127:
"By the end of our medium-term forecast period, we project debt
to reach about 100 per cent of GDP,
after which it rises to over 300 per cent of GDP by
2072-73. If a government wanted instead to keep debt from rising above 100 per cent of
GDP over the long term, this would require a permanent increase in taxes and/or cut in
spending of 4.4 per cent of GDP in 2028-29. There is also an alternative, and arguably
more realistic, adjustment that estimates the staggered improvement in the primary balance
in each decade to reach this level of debt. We estimate this to be a 1.5 per cent of GDP
adjustment made to the primary balance every decade."
