Should we worry about high government debt? | IFS Zooms In

We often hear about government debt in the headlines. Currently the UK government owes around £2.65 trillion, nearly 100% of UK GDP - the value of all the goods and services produced in the UK in a year.

How has the debt level grown? Should we aspire to reduce the debt? And do we need to worry about high debt to GDP ratios?

Joining us today to answer all these questions and more, is David Miles, Professor of Financial Economics at Imperial College Business School, a member of the OBR Budget Responsibility Committee and former member of the Monetary Policy Committee at the Bank of England.

00:00 - Introduction
02:15 - What is government debt?
4:10 - Government debt after WW2
7:30 - International comparison
10:15 - The cost of debt interest
15:20 - Quantitive easing
21:52 - How to bring the debt down
24:30 - Borrowing to invest
31:00 - Growth, productivity and debt
35:48 - Can the next government spend more?
39:29 - The role of the market
43:43 - Conclusion

[stephfoxwell]

We've had a Government debt for 330 years. It has averaged 92% of GDP. Peaking at 248% in 1946.

[billcheung]

0:07 / 45:58

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Introduction


Should we worry about high government debt?why not cut all MP?councilor? wage & extre

[tobiasgreen]

On that purchase of wealth-destroying index linked stock at negative real returns - it definitely had something to do with regulation and accounting, resulting in appalling stewardship decisions being made, seriously hurting the situation of pension scheme members and their sponsors.

[anthonyferris]

And as of March 2023, the Japanese public debt is estimated to be approximately 9.2 trillion US dollars (1.30 quadrillion yen), or 263% of GDP, and is the highest of any developed nation.

[MathewRouge]

Government debt is not like household debt. Government debt is an assest to a lot of people in this country such as pension funds. Government debt should not be seen as a bad thing. Also, the government doesnt need to take on debt to spend. They can have an overdraft with the Bank of England that never requires paying back as the govt owns the BoE. As much as I admite the ifs, l wish they could explain this and the fundamental difference between govt debt and household/company debt. The govt can literally print money if it wants as long as spending into the economy does not cause inflation.

[drscopeify]

I am confused here does the BOE not return the interest coupons BACK to the UK Government? In the USA the FED returns the interest back to the US Treasury which is why the debt held by FED is "free" money as the interest is returned back.

[kevinu.k.]

I would love to hear why the ECB is paying less interest on government debt. The very thing we are shown here does not work.

[richardcoppack]

I love the Professor's repeated understatement.

[BosskV]

Just a reminder that UK government debt reached 400% at the end of the second world war. Despite this the Labour party still built the NHS, the social welfare system and over half a million homes to rebuild the country. Our current debt is 100%.

I'm not saying I'm okay with our current debt... but don't let anyone fear monger. Britain has been in far worse situations in the past. Fear mongering over debt is precisely how the Conservative party manufactures consent for their austerity ideology (which does not reduce debt).

[brownlow]

I'm still unclear as to why we should worry about govt debt. They assert that it's likely to increase, which doesn't make it inherently bad. They claim that it's historically high as %GDP, but it's at historical average. They admit that it's about average among similar economies (in fact it's below average), but then claim the "whole ship is going down" and guffaw without explanation. The discussion of QE/interest on reserves is all over the place. The interviewee, presented as an authority, is at odds with others and a quick google reveals that he is indeed a deficit hawk.

[JanetteCorker]

As always, great educational material, thanks.

[FONASDeadlock]

Gordon Brown's suggestion to stop paying interest on the reserves held at the Bank of England is a no brainer. They're making so much money that this just becomes an easy to absorb business expense for them. It's not possible for the retail banks in the UK to pay less money in interest, any other argument is just a nonsense.

[cobbler]

With interest rates at 5.25% the interest payments are something to worry about.

[russellwild]

Throwing money at the NHS isn't going to solve any problems, it'll just result in more spend on staff and by that also future pension liabilities. They need to look at the efficency of the service and all other government departments, which if they just throw money at it, it'll reduce productivity

[stevemartin]

Why do countries keep "Pay as you go" pensions? Why not start using better methods to fund them? I think Chile started that in the 1980s and now they probably have a fully funded pension system. As for NHS; limit the services or find better ways to fund that too. I do agree that there is nowhere near the flexibility that the govt had after WW2 to lower govt expenditure. The puzzle for me is what has happened in the last 20 years to make debt grow so much? Is it the idea that "we can spend or way out of any crisis"? The govt seems to get the spending part right, but not the repayment part so debt just keeps growing.

[forsdykemontague]

Debt/GDP over 80% puts the breaks on growth, as we have seen the proof of the pudding has been in the eating. Japan is another example with practically 30 years of stagflation.

[Inspector-Chisholm]

If you don't have to pay interest on the QE, why don't you just defer payment indefinitely?

[lostgleammedia]

We owe it to ourselves, it doesn't matter. Money is a tool to make society work. In fact Cancel all the debt, developing countries as well, and just carry on like normal like we are now. Just start again, then banks can give mortgages to young people again. Print what the pensions, that have invested in debt products, need to pay them back.

[monir]

Yes we should worry about high government debt. Looking at HMRC tax records - anyone can do it online. It has taken 12%

[GonzoTehGreat]

15:20 This has to be the least understandable explanation of QE I've come across. After listening to the Professor twice I still don't understand why the government has to pay interest to the BoE.
17:48 He does briefly discuss the idea of the BoE forcing private banks to hold reserves on which they don't receive interest, but says this would be equivalent to a tax on the banks (I'm not sure that it is), the cost of which would be passed onto customers.
Given how important QE has been since 2008, a clearer and more detailed explanation would've been more helpful.