United Kingdom National Debt and Recession Report (Assessment)

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Introduction

The economic recession that hit the globe in the later half of 2008 has caused its fair share of problems to the United Kingdom as a country and also to its government which has had to contend with a high level of national debt over the last few years. National debt refers to the sum owed by a government to both domestic and international creditors in any given period. According to King, (2010, para. 5) a country’s national debt becomes a problem when the government can no longer be able to pay it.

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The United Kingdom National Debt during the Recession

The United Kingdom national debt is not yet at that point but the continued budget deficits are not doing the situation any good as they continue to increase the future cost of repaying the debt. This is because every time the bank rate goes up, the rate of interest on the debt follows suit. The build up in the deficit is caused by the fact that the recession affected the country’s public finances in that the government is not getting as much income as it should be especially from the tax and customs department while at the same time it continues to pay huge sums of money in the form of unemployment benefits (Conway 2009, para. 3). In order to settle these payments the government is forced to borrow further raising the national debt. The level of government borrowing is said to be the highest since World War II and is threatening to tarnish the country’s previously high credit rating. King (2010, para. 3) said the government’s national debt as of February stood at 848.5 Billion Pounds yet its expected income was 498.1 billion Pounds which represents a 170% debt over the expected income. This increase in debt was fuelled by the borrowing in January this year said to be the worst so far especially for a month that the government usually makes its highest collection in terms of income and corporate taxes (Allen & Wintour 2010, para. 1-3). This was blamed on the difference between tax collected and government spending standing at 4.34billion Pounds.

This worsening situation has elicited different reactions from different quarters among them economists who disagree with the way in which the government plans to deal with the situation which is to put off paying off the budget deficit until 2011. They are of the opinion that the government should start paying off the debt immediately after the general elections to be held on later this year so as to avoid the loss in confidence in the government and country at large by lenders as well as threaten the planned economic recovery in the country (Stratton 2010, para. 1-4).

Despite these concerns, Gordon Brown, the country’s prime minister, insisted that the country’s priority was to regain economic growth and not to cut budget deficits (Wearden 2010, para. 1). According to him, cutting down the government’s public spending would prove detrimental to their quest to regain economic stability in the country. In response to the economists’ take, Gordon said that even though the borrowing associated with the stimulus packages his government was offering meant an even higher national debt, it was necessary as it would pave the way for economic recovery (Wearden 2010, para. 5).

Implications of an Already High and Growing National Debt

An over the top national debt has negative implications for a country on different levels. One such level is the fact that a country loses its debt credibility in the eyes of its lenders especially on the international level. To the United Kingdom, this has come in the form of higher lending rates being charged by international investors compared to the interest rates they charge to other countries they consider more creditworthy such as Germany (King, 2010, para. 7-8). As such the country’s government should work at ensuring that its credit ratings stay up by proving that they are in control of the current budget deficit.

The government also has to come up with solutions for the growth in the national budget. Many economists believe that the worst of the economic crisis has passed and as such the government should stop borrowing to keep the debt at manageable levels (Stratton 2010, para. 8).

Conclusion

High national budgets should be avoided at all costs because they have a negative impact not only on a country’s credit worthiness reputation but also on the general economy of a country. Even if high levels of borrowing are necessitated by harsh economic conditions such as the economic recession, they should stop as soon as stability is maintained such as is the case in the United Kingdom.

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Reference

Allen, K. & Wintour, P., 2010. Government deficit Blow Adds to Pressure on Darling. The Guardian. Web.

Conway, E, & Blake, H., 2009. National Debt Hits Post-War Peak as Tax Receipts Slide. The Daily Telegraph. Web.

King, I., 2010. Worried about National debt? Things are worse for Mr and Mrs Average. The Times. Web.

Stratton, A., 2010. Top Economists Attack Labour Plan to Tackle Britain’s Budget Deficit. The Guardian. Web.

Wearden, G., 2010. Brown Insists Recovery, Not Cuts, Must be the Priority. The Guardian. Web.

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