National debt and democracy: what has been the UK’s experience?

Many of the world’s leading democracies are struggling with high levels of public debt, rising interest burdens on that debt and slower growth than in the past. The democratic challenge is persuading the public to accept higher taxes or reduced public spending to curb unsustainable budget deficits.

This article is part of a series on public debt, supported by the Peter G. Peterson Foundation.

Why should the voting public in a democracy worry about national debt, as opposed to their own?

The answer is not obvious. On the metric that is most commonly used to compare the stock of outstanding public debt – the ratio of net debt to GDP – the UK’s current figure of 94% is lower than in the early 19^th century when the country was establishing a global empire, or in the 1950s when the then prime minister was able to claim that citizens had ‘never had it so good’.

If the same metric is used for comparison, the UK’s ratio is less than that of the United States (123%), the government of which has been able to finance rising debt without great difficulty. Likewise, it is lower than in Japan (249%) and Italy (145%), both of which have lived with high debt for many years, and Canada (114%), which is often regarded a role model for good governance and economic management. No obvious problem there.

Good reasons for public debt

Moreover, there are good reasons why governments borrow and add to the stock of public debt. In cases of national survival, as in wartime, governments borrow from the public or friendly foreigners in the expectation that future peace will generate economic growth and resources to repay debt or inflation to erode the real value of the debt.

Britain’s previous peak levels of national debt followed respectively the Napoleonic war and the First and Second World Wars. All of these periods were followed by gradual debt reduction caused by real economic growth or inflation (see Figure 1). But we now have wartime debt without a war of survival.

Figure 1: The UK’s public debt over three centuries

Source: Institute for Fiscal Studies

A second good reason for public debt is to borrow to invest in infrastructure, public housing or other assets that directly, or indirectly, generate income to service and pay down the debt. A good example is the London Crossrail project, which was financed in part by taxing the appreciating land values of adjacent commercial property.

A bad example is the high-speed railway project HS2, which is hopelessly over budget and many years away from generating an income stream. Furthermore, the benefits of public investment may be reduced if the government is competing with private investors for scarce resources including capital, pushing up their cost.

A third justification for public borrowing to invest is when resources are unemployed due to a shortage of demand. This is the classic Keynesian argument that public investment has a multiplier effect, boosting consumer spending and private investment.

In recent years, the nearest approximation to that theoretical construct was after the global financial crisis of 2007-09when the UK’s public debt ratio more than doubled. There was a concerted international effort to stimulate demand and avert recession using both fiscal and monetary policy.

But the heavy borrowing during and after the global financial crisis was only in part Keynesian in its rationale. It was also to protect incomes and jobs when there was a major supply disruption – and that has become the basis for much recent borrowing. In that case, the government borrowed heavily to recapitalise banks, making them safer and better able to lend in future.

Later, the Covid-19 pandemic was another severe supply shock and the government paid for enforced quarantine, when work partially ceased, by making job furlough payments. The energy price spikes following the Ukraine and Iran wars were seen as contributing to a ‘cost of living crisis’, and led to measures to subsidise energy prices for consumers and producers.

In essence, British politicians – and others elsewhere – decided that the fiscal cost of adjusting to shocks should be transferred to future generations, which, it is hoped, will be richer and better able to face it. Some thinkers, such as economics Nobel laureate James Buchanan (1958), have questioned the ethical basis for such intergenerational transfers of tax burdens. But today’s politicians seem to be more influenced by Woody Allen’s quip: ‘what have future generations ever done for me?’

Debt sustainability

Debt can be passed to the next generation. But it must be serviced: interest paid. Of current UK government spending, 6% is debt service, competing with other priorities like defence, the NHS and schools. That is not as high as in the United States (where it is over 10%) but more onerous than in France (3.7%) or Germany (1.4%). With strong public resistance to higher taxes, debt obligations are forcing the government to make difficult spending choices.

Furthermore, what has changed – at least in the rich world – is a combination of rapidly rising borrowing costs, historically high debt levels and slow economic growth. The UK has seen borrowing costs – the yields on government bonds – rise from near zero five years ago, when interest rates were artificially suppressed by large central bank bond purchases (‘quantitative easing’), to over 5%.

Net debt levels are now close to 100% having more than doubled since before the global financial crisis. At the same time, economic growth has fallen to barely more than 1% a year, half the rate before the crisis. Is UK debt unsustainable?

After the crisis, some economists popularised the idea that there is a threshold level of debt that triggers a financial crisis: a collapse of confidence in government bonds (Reinhart and Rogoff, 2011). They suggested that a 90% ratio of debt to GDP was that threshold, above which a crisis would lead to much higher interest rates and the need for extreme measures to restore confidence.

Such thinking in the UK Treasury was a major influence guiding policy in the early days of the 2010-15 coalition government. But the analysis was shown to be numerically wrong. And as Figure 2 shows, there is no statistical link between debt levels and borrowing costs for a cross-section of 25 countries.

Figure 2: Debt and bond yields across countries

Source: London Stock Exchange Group (accessed 3 November 2026); IMF

Notes: no statistically significant relationship between net debt and 10-year yields. R² = 0.00 (0.03 excl. Japan).

A more widely accepted rule of thumb for defining sustainability is the simple formula g > r where r is the interest rate and g is the growth rate (Blanchard, 2019). If r is larger than g, then, by definition, debt growth is cumulative.

Where big numbers are involved, the rule of thumb has clear implications. India has estimated real growth in 2026 – g – of around 8%, but the real interest on ten-year government bonds – r – is 2% (7% yields less 5% consumer inflation). On these (questionable) statistics, India does not have a debt problem. By contrast, Brazil does, and not for the first time: real growth of around 2% is far below the estimated real interest rate of 10%.

For rich countries, the calculations are more ambiguous. The UK appears to have real long-term interest rates of about 2% and a growth rate of between 1% and 1.5%, which is a tiny difference and smaller than measurement uncertainties. The United States ‘passes’ the test, as do most rich countries bar France, narrowly.

We therefore need to look at a wider range of factors than r and g. And the policy implications of a modest excess of r over g are not obvious.

British exceptionalism?

The UK has several factors making it particularly vulnerable to a loss of confidence in its public debt.

First, the country has been running consistently large budget deficits, requiring additional borrowing, over and above borrowing to invest, for 20 years. The current budget deficit rose to 6.9% of GDP in 2010, which ushered in the period of austerity and deficit reduction until the deficit reached zero in 2019. It rose again to 11% in 2021 thanks to Covid-19, and it is estimated at 1.7% for fiscal year 2025/26.

To prevent UK debt from rising continually while servicing debt interest of around 3.5% of GDP, the country would, it is estimated, require a primary surplus (that is, before interest payments and investment) of around 1.5% of GDP: the largest of any rich country (The Economist, 2025, using IMF data). Such dry numbers conceal much political pain.

Second, the UK does not enjoy some advantages enjoyed by other countries with high debt levels. Japanese governments have long been able to borrow reliably at relatively low interest rates from patriotic domestic savers. Despite a debt-to-GDP ratio above 200%, the Japanese government pays only 1.5% of GDP in interest charges, which is under half the OECD average.

European countries with higher debt levels like France and Italy are members of the Eurozone. They have the implicit promise of conditional financial support from the currency bloc to prevent debt default.

Most importantly, the UK, unlike the United States, cannot borrow limitless amounts in its own currency. There is a vigorous debate in the United States as to how far the government can continue to rely on foreigners, especially central banks, being willing to hold growing volumes of US government debt as assets. So far, they have.

Third, there are various technical factors that have adversely affected the UK’s debt profile. The Bank of England has been selling large volumes of government debt, acquired through quantitative easing: in effect, competing with government borrowing (though it has now agreed to let debt run off at maturity, in future). The UK also has a preponderance of more expensive long-term debt, although there is a move to shift to cheaper and shorter (but more volatile) debt markets.

But the issues are not primarily technical. The Office for Budget Responsibility (OBR, 2025) has summarised the problem: ‘The UK’s fiscal position is increasingly vulnerable by historical and international standards… The UK stands out for having persistently high deficits and relatively high debt stock in the face of rising interest rates, slowing growth, an ageing population, rising geopolitical and trade tensions.’ So why can’t politicians act?

Is democracy to blame?

It may not be a coincidence that a significant number of the world’s leading democracies are struggling with rising government debt levels, rising interest burdens on that debt and slower growth than in the past. The French government appears unable to obtain support for even modest fiscal tightening. The annually threatened US ‘shutdown’ over the budget points to the difficulties of controlling spending in a highly polarised political system. Then, there is the UK.

But it would be wrong to assume that non-democratic governments fare better in terms of debt sustainability. The 25 countries that have defaulted on sovereign debt or have experienced forced restructuring in the last 35 years, include such autocracies as Angola, Cameroon, Russia, Venezuela and Zimbabwe. Such governments had little commitment to contractual obligations or long-term economic development.

Even between the two ‘superpowers’ with their radically different approaches to politics, debt is a shared problem. China has a public debt ratio approaching 135%, perhaps higher (IMF, 2024). This debt is almost entirely domestic, but nonetheless it acts as a serious budget constraint, inhibiting measures to boost demand.

That said, there is a democratic debt problem: persuading the public to accept higher taxes or reduced public spending to curb unsustainable budget deficits. A recent survey of public opinion by Stonehaven shows that 47% of the British public believe that the government could simultaneously reduce taxes and debt while increasing spending; 40% disagreed and the rest weren’t sure (see Figure 3). Among younger people – those under 35 – the figures were 63% against 31%.

Of course, in the long term, the majority is right if strong growth is assumed. But in the meantime, there is much magical thinking reflected in an upsurge in support for ‘populist’ politics.