In the early months of 1975, with Britain creaking out of recession, the government’s debt was equivalent to around 56 per cent of GDP.
A year later, Harold Wilson was replaced as Prime Minister by James Callaghan who promptly went cap in hand to the IMF. Such was the parlous state of the UK’s economy, and the government’s finances, that the country was forced to accept a humiliating bailout.
The size of the public debt steadily declined during much of the subsequent 15-odd years, and by the time John Major was settling in at Number 10 at the start of 1991, the ratio of debt to GDP was down to around 24 per cent. The economy had its own problems in the early ’90s, of course, but the proportional size of the debt remained below 40 per cent for virtually all of the decade and, indeed, by the time Tony Blair won a second general election in 2001, it was back down to 29 per cent.
Despite Gordon Brown’s somewhat profligate spending, the debt/GDP ratio hovered around 35 per cent until the sudden shock of 2007’s credit crunch.
When Lehman Brothers went bust in September 2008, it was up to 43 per cent, and had spiked to well over 65 per cent by mid-2010, when David Cameron entered Downing Street.
Despite Cameron’s right hand man, George Osborne, promising to eliminate the annual deficit, the government has since added hundreds of billions of pounds on to the debt pile which now stands at around 83 per cent of the country’s output.
The picture is unlikely to improve in the coming years. The highly-respected Institute for Fiscal Studies says this morning that the outlook for UK public finances has already worsened by £25bn since Osborne’s final Budget earlier this year.
In the short term we appear to be stuck with slower growth, and in the long term we can expect higher costs of servicing the debt, and the unnerving effects of a demographic timebomb, as the population grows older.
In just over two weeks from now, Philip Hammond will stand and deliver his first Autumn Statement to parliament. In the run-up, you will hear talk of potential “giveaways”, and a “loosening of the purse strings”.
When you do, it’ll be worth taking a step back and reminding yourself of the fiscal plight in which the UK’s public sector still finds itself.