Tag Archives: national debt

In earlier days of Covid, I argued that we should spend whatever was needed to tackle the pandemic and not worry too much about the national debt. It seemed a no-brainer then but, as we move into post-pandemic or endemic times, things don’t look so straightforward. 

To outsiders, including me, money and banking can look horribly arcane and complex. Still, it has a big influence on our lives. Active democrats need at least some understanding of it. I’ve tried to expand my own understanding and here, in summary, is how I see things:

In the UK we are in charge of our own currency, which is not pegged to any other currency or to gold or silver. We can borrow in our own currency. This means that we can’t involuntarily go bankrupt –  we can create money to settle our debts. A sovereign state is not like a household. 

We have to be careful. If we put too much money into circulation, by spending too much more than we raise in taxes, inflation can run wild and it can be difficult and painful to get it back under control. Too little money can mean unemployment, empty buildings and idle machinery. Things are particularly tricky at the moment because we have inflation driven by the world price of energy and by bottlenecks in supply chains from Covid and Brexit.

The size of the national debt doesn’t always matter much – it depends partly on who is financing it and at what rates of interest. At the moment, nearly 40% of the UK national debt is owed to the Bank of England, which the government owns, and there seems scant evidence that the debt is itself a problem. However, the debt is often used by right-wing Tories as an excuse for the austerity they love.