Money, money, money, it's so funny...Not.

For most people, including me, the world of finance is a strange animal. People generally do not have much of an idea how it all works beyond their interest from a bank.We all understand we receive some interest if we save money. But how does a country financial system actually work? Well, for the most part it gets its income from two main sources. Taxation and borrowing. And that is as far as most of us go. Ideally of course taxation would cover all of the costs a government has. Social as well as defence and also improving infrastructure. But as we know that is not the case, so any shortfall or new plans need borrowing funds. One of the big problems with borrowing is one has to pay interest charges. Most borrowing the UK does is by issuing Gilts, which investors can purchase and in return they receive interest for a specific period. A gilt is a UK Government liability denominated in sterling, issued by HM Treasury and listed on the London Stock Exchange. The term “gilt” or “gilt-edged security” is a reference to the primary characteristic of gilts as an investment. The British Government has never failed to make interest payments or principal payments on gilts as they fall due. The interest rate is depending on the rate set at the time of issue. But to calculate (roughly) the debt cost, the statistics available (Wiki) states a figure of around 3% of GDP or roughly £45billion. An interesting aside here is this equates to a personal debt of every UK citizen of around £750 but equates to about £2000 for each employed person.The huge amount of borrowing over the past year has now pushed government debt up. At the end of March 2023, UK General government gross debt was £2,5 trillion, or 100.5% gross domestic product (Wiki). Eye watering sums.

Obviously it would be great to be able to say we can balance the books but that is virtually impossible in the society we have built as it is today. Just remember the cost of the NHS, free to all citizens. Infrastructure development (Power etc). As most people would not worry a minute or even a second about national debt, it does have an impact on all our lives. Taxation. A shortfall or even increased debt costs might push up taxation levels. These might be ‘hidden’ ie increased costs of fuel or Council Tax because the revenue from the State has been reduced. It all matters as it all depends on each and every one. Recently a TV News item showed up a worrying trend. This is about Investor Groupings warning about the enormous national debts. Not just the UK but all countries. For instance not spoken about it much but the national debt of the US is around $34trillion! In sterling £26 trillion. The problem can be what a country produces (GDP) is less than the national debt. In other words the country is technically bankrupt. There have been and will be more nations that are defaulting on their debt payments. If that would happen to the US and the UK together (let’s assume this) we could well end up in a similar scenario as the 1929 Collapse. So, let’s not believe the sugar coated words of politicians. In the first instance most have no idea about finance which shows up before every election by promising the moon. Again, they might have been briefed but a promise is a promise, no? Let’s see how well Labour has prepared their manifesto or promises. I am NOT holding my breath.

Edit: The figures quoted are mainly from the various websites. If anyone wants to be more precise please look at the relevant data. I have wanted to be more general without being wildly away with the fairies.