Debt is the biggest problem facing Britain right now

National debt is going to be the biggest driver of political decision-making over the rest of the current Parliament, Paul Montague-Smith, senior counsel – public affairs at MRM, writes.

Debt. It’s a word most people would probably think has negative connotations. I certainly did when my credit card debt became unsustainable back in the day. Not through any frivolity on my part – just a series of unfortunate and unforeseen events. It took a long time and outside help to get back on an even keel.

Credit on the other hand feels very different. It gives you options. It can smooth your income, helping you manage unexpected lumpy payments. It enables companies to launch, innovate and expand. It can be a strong driver of positive change and growth.

They are of course two sides of the same coin and they have, over the last 60 years or so, come to be the masters of our personal, national and global finances – one of the most powerful forces over our lives.

The sheer scale of debt is difficult to take in. In the UK, we have around £1.6 trillion of mortgage debt. We have around £22bn on credit cards. Our nation’s credit card, though, currently stands at £2.8 trillion. The United States of America’s is well over $36 trillion. In fact, at the moment of writing, it was $36,785,263,439,151. It’ll be more now (you can have a look here: https://www.usdebtclock.org/).

US debt already exceeds its annual GDP, which is the main reason Donald Trump introduced his tariffs, to help pay it down. Ours is nearly at 100% of our GDP. The IMF recently warned that global public debt is on course to exceed global GDP by the end of the decade, ironically partly because of US tariffs.

Of course, having a big debt isn’t necessarily a big issue, provided you can make your repayments, as many do with a mortgage. But when you start having to cut back on heating or eating to make them, then you begin to have problems, which is where the Chancellor currently finds herself.

As a nation we spent over £370 billion supporting individuals and businesses through Covid. Whether the ongoing public inquiry into the pandemic response will judge the value for money of that spending is unclear. But our monthly interest payments on our national credit card currently add up to around £105 billion a year – quite a bit more than we spend on educating our children.

That represents just 3.7% of our national income, which might seem fine. After all, people’s rent and mortgages are usually much higher than that as a proportion of their income. But the markets (by which I mean those who buy Government gilts and effectively lend it money) seem to take a different view.

The Government is still having to borrow more than expected (nearly £15bn more than forecast over the last year). Having borrowed a large slug of money at the last Budget to invest £100 billion and hopefully spur growth, the Chancellor is now having to live within her ‘iron clad’ fiscal rules, which are designed to give the markets the confidence they need to keep buying government debt at the lowest possible levels of interest.

Make no mistake, as a country and Chancellor you can’t escape the markets, as Liz Truss and more recently Donald Trump have found out. With no more borrowing, little room for manoeuvre on taxes, no signs of a change infortunes for our national income and impending demands from trade unions for above inflation pay settlements, debt – even if it isn’t explicitly talked about – is and will remain the biggest driver of our politics in this Parliament, and almost certainly the next.