Britain’s soaring public debt isn’t the real problem unlike UK house prices, the London-centric economy and under-investment, an expert has said.
Chancellor Rachel Reeves today (September 20) faced a fresh headache ahead of her first Budget on October 30 after official figures revealed Government borrowing leapt by more than expected in August.
Borrowing rose to £13.7billion last month, marking the third highest August on record. It was driven by higher spending on public services due to increased running costs and pay increases.
The increase means public sector debt hit 100 percent of gross domestic product at the end of August, meaning national debt is at levels last seen in the early 1960s, according to the Office for National Statistics.
Economics experts have told Express.co.uk the 100 percent figure doesn’t signify a crisis in the country’s finances, but the Labour Government has a challenge on its hands to get Britain out of its economic growth doldrums to pay down the debt.
Professor Laura Coroneo from the University of York said: “The fact that public sector debt has reached 100 percent of GDP, it’s not necessarily a crisis in itself.
“The real issue we should focus on is the anaemic growth that has plagued the UK for years. Without robust economic growth, any level of debt becomes harder to manage.”
Professor Coroneo said at the core of Britain’s stagnation problem is low productivity, driven by inadequate investment and a crippling housing market.
She said investment in the UK has lagged behind other G7 countries since the mid-1990s, leaving the country less competitive globally while at the same time skyrocketing housing costs have sharply increased the cost of doing business as well severely restricted labour mobility.
The expert explained: “When workers are priced out of moving to areas where jobs are available, businesses face growing difficulties filling critical vacancies. This lack of mobility undermines labour market efficiency, making it harder for companies to expand, innovate, and compete while stifling overall economic growth.”
Professor Coroneo said the London-centric nature of the UK economy makes these issues worse as economic activity and investment are disproportionately concentrated in the capital and South East England while other regions remain underserved.
She said: “This imbalance not only widens regional inequalities but also limits the country’s overall growth potential, preventing the development of a more dynamic and balanced economy.
“Addressing these structural issues — boosting investment, tackling the housing crisis and spreading opportunity beyond London — should be a priority for the Government in order to manage the debt sustainably and foster long-term economic growth.”
Dr James Watson, Associate Professor in Financial Economics at the University of East Anglia, said Britain’s 100 percent debt to GDP of itself is not a threshold that makes the situation worse.
He said: “We haven’t suddenly fallen off a cliff. The UK, like many economies, owes a lot more than is ideal, in large part because of the extra borrowing due to the global financial crisis and more recently the pandemic.”
The expert added that the 100 percent of GDP headline is just one part of a complex picture. Other parts include borrowing costs on the existing debt; the average maturity of the existing debt and how much it will cost to refinance debt in the coming years.
Dr Watson said: “There are even complexities around whether simply reducing the annual budget deficit necessarily helps in the long run.
“But what we do know is that economic growth helps enormously. While challenging to achieve, economic growth is the way to sustain and perhaps ultimately reduce these high debt ratios.”
