UK Government Debt: The Tip of the Iceberg

Posted on: 23-11-2011 in Finance

There’s a lot of talk about government debt-to-GDP ratios lately (well, there is in the pubs I frequent).  Greece’s government debt stands at 160 percent of GDP.  Japan has a debt-to-GDP ratio of over 200 percent.  Then there’s Italy, Ireland and Portugal with debt-to-GDP ratios of 121 percent, 109 percent and 106 percent respectively.  Even America’s government debt has recently reached the 100 percent of GDP level. Next to these figures the UK government’s debt-to-GDP ratio of 77 percent doesn’t look so bad. However, government borrowing is just one component of a country’s total obligations. As the chart below shows, when you factor in private sector debt it turns out the UK is actually the most indebted country of all: The UK’s combined business and household debt is significantly larger than any other major developed economy. And when you add in government debt that takes the UK to the top of the debtors table. At 500 percent of GDP the UK’s total debt burden puts the country in a precarious position.  If credit markets freeze up again (ala 2008) things could get as ugly for the UK as they currently are for Italy, Greece, Portugal, Ireland, etc, etc. Here’s what the BBC’s Robert Peston has to say on the subject: UK’s debt ‘biggest in the world’