UK Debt predicament – structural weakness and a credibility deficit

The UK’s poor fiscal position leaves it more vulnerable than many other countries to global shocks. This means that UK governments need a strong, coherent narrative and policies that will sustainably improve the fiscal position to maintain market confidence.

Though UK government gross debt is lower than most other G7 countries, its relative lack of public sector
assets means the net debt position is much weaker. In addition, debt has risen sharply since 2007. Countries with much higher levels of debt can take advantage of structural benefits the UK doesn’t share.

The UK has one of the highest budget deficits in the G7, and the government’s plan to reduce borrowing
lacks credibility. Tax-based consolidations have a high failure rate, a risk increased by the focus on small
revenue streams. What’s more, its history of pushing back planned tightening further undermines
credibility, particularly given some of the measures are due to be implemented in an election year.

Successive governments have struggled to tackle persistently high inflation and weak productivity growth.
Regular political upheaval and increasingly populist discourse make it harder to drive the necessary
reform. As a result, the UK has not yet found a route out of its damaging debt dynamics.

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