The accumulation of debt is one of the important issues affecting Great Britain. Factors ranging from governmental oversights to international economic crisis play a role in the current debt-ridden situation of the country. Though it has been assumed that the debt has steadily increased since the aftermath of the Second World War, its real beginnings can be traced way back to the 1700s, when overwhelming military expenses and an extravagant lifestyle of the monarchy, along with expensive wars, contributed to the national debt. Within the past century, the main event which caused the sharpest rise in national debt for Great Britain was following the Second World War.
Unsurprisingly, the destruction of WWII caused a dramatic shock to the fragilely balanced Post-WWI economic situation in Great Britain, quickly transforming the nation’s prosperity into dire financial ruin. At the end of the conflict, Great Britain was responsible for a fifth of the global military expenditure, due to the immense costs of materiel and provisions. This resulted in the country owing an astonishing amount of money, which needed to be repaid shortly after the war’s end by economies of all nations who had taken on debt.
The situation was further complicated by the operational structure of the British government at the time. As executive expenditure was controlled by the central government, and local taxation was insufficient to cover the cost of infrastructural development, the UK was left in a state of consolidated debt. In addition to large government expenditure, the government’s involvement in relief, welfare and social reconstruction activities played a part in increasing the debt. As such, most of the accumulated wealth was held by the administration to cover these expenses.
David Dickens, a renowned financial consultant, believes that there are a few other factors to take into consideration when analyzing the rise of Britain’s debt during this time. These include the shift to a welfare state, increasing levels of taxation and heavy borrowing to cover economic losses. He states “The shift towards a welfare state, the introduction of a welfare-state-economy, and the rise in taxation levels, while necessary at that time, were main contributors to Great Britain’s debt during the post World War era”.
In addition to leaving behind physical destruction and economic turmoil, WWII spawned a plethora of social problems, such as the emergence of a housing shortage, increasing labor disputes and general poverty issues. Hence, the need for further extensive borrowing was further highlighted. Despite the passing of several austerity measures by the government, it couldn’t keep up with the rapid rise in expenditure, resulting in an increase of the British debt.
Contemporary Debt Crisis
In the contemporary world, Britain’s debt level has continued to rise. Factors such as the 2008 financial crisis and the implementation of fiscal austerity measures, along with the country’s changing demographic, have all contributed to increase the debt levels of the government. According to reports, by August 2020, the national debt had swollen up to over 2 trillion pounds. The main contributing factor to the rising indebtedness is the ongoing COVID-19 crisis, due to the heavy borrowing required for the disbursement of economic aid, as workers were unable to cover expenses incurred in the lockdowns.
Fortunately, with the recent resurgence of the economy, and the hope that the coronavirus vaccine will soon be available, there is a decrease in the general financial burden that arises with the debt. Despite the resilience of the economy, however, the UK still faces the challenge of reducing its debt levels in the long-term, in order to protect its fragile prosperity.
Impact on the Global Economy
The effect of such a large debt amount on the global economy cannot be overlooked. Restrictive implementations and expansive fiscal interventions have contorted economic policies and fiscal accounts, allowing the debt to stabilize but decreasing the effectiveness of stimulus policies to control market changes. Companies have reported their debt levels to be constantly rising, and their solvency is affected due to the deflation caused by the debt.
This issue isn’t only limited to the UK, however, as most of the European nations are also suffering from numerous consequences due to the sudden rise in their debt levels. This includes a decrease in domestic production; an inability to cover import/export costs, and a rise in economic disparity among the nations of the world.
Economist Jeffrey Chamberlain believes debt is essential for building prosperity, citing examples from the USA as proof for his statement. He states, “The functioning of the economy is not disrupted by a rising debt, but rather incentives higher-level investments and encourages the creation of a stable financial system.”
Economic Reforms
Realizing the importance of the debt situation, the government of the UK has passed several reforms to decrease the country’s overall indebtedness. These include the delivery of reforms to enable the formation of a balanced budget and the enactment of financial responsibilities to start reducing the debt amount.
However, such radical tactics come with a warning. Since much of the population is dependent on the welfare State, its decline can have dire consequences in the provision of essential services. Nevertheless, with the use of proper planning regulations and the appropriate implementation of policies, a small increase in government expenditure can reduce the debt level significantly.
Accountant David Richardson advises caution in deciding the course of action, stating, “The problem with large-scale economic reforms is that they come with certain immediate repercussions, both financially and politically. Hence, we should consider the pros and cons before taking a call on it.”
International Financing
International financing is another essential and practical instrument used to decrease the burden on the national debt. It includes the extension of loans, bonds and other forms of financial assistance by global organizations to UK governments in order to aid in the reduction of economic hardship. Though the grants delivered by such programs are not sufficient enough to address the magnitude of the problem, it has still allowed the UK to attain an improved apparatus for the effective utilization of money for the reignition of economic growth.
Though a major portion of the loans received by the British government are used to cover public liabilities, they also contribute to a lesser known uptake of the economy- green energy development. Specifically, loans are sanctioned to support renewable energy sources such as solar and hydroelectric power.
Kenneth Logue, a renowned scholar from London School of Economics, believes such programs should be used as a source for international investments. He states “The ultimate goal is to help the government fulfill its promise of upholding people’s welfare and social progress. Such investments would also create employment opportunities and foster technological advancements.”
Long-Term Implications
The accumulated debt of the British government has managed to obstruct the way of several movements towards the positive transformation of the country, primarily due to the burden that it has placed on the economy. Key aspects of the society, such as transportation, education, and healthcare, have suffered in terms of basic provisions and infrastructure needs. This raises the question- what will happen if the debt is not addressed soon?
The potential long-term effects of the existing debt on the economy of Great Britain can be incredibly dangerous. It’s important to note that the nation’s debt is more than double the GDP, a figure that can spell disaster if not addressed in the long run. It can be inferred that any sort of economic downturn can cause more debt to pile up, thus reducing the nation’s global competitiveness even further.
Michael Clancy, a renowned economic consultant, explains “Any form of economic crises can affect the standing of the UK in the international market. Such a situation will further restrict the ability to expand the economy of the country, effectively slowing down the reduction in debt”.
Mitigating the Debt
In order to effectively reduce the debt level, the government is forced to confront the growing financial crisis that seems to unfold each day. The Prime Minister has already stated that mitigating the debt should be a priority, and the government is expected to pass a number of reforms in the next few months to ensure that the debt levels do not rise even further.
At the same time, the government is considering the implementation of certain policies that would tax the wealthy in order to make up for the deficit caused by the debt. It must be noted that such policies should be implemented with caution, and only after considering the implications that their implementation could have on the overall economy.
Joseph Bonaparte, an advisor to the British Treasury, believes the government should take a more active approach in order to reduce the economic burden of the debt. He mentions “The government needs to invest in creating a healthy economy, as well as ensuring the welfare of the citizens, so that the debt can be handled properly. The most important factor when considering debt reduction is the sentiment of the citizens.”
Conclusion
The current debt levels of Great Britain are far from ideal, and it is important for the government to take the necessary steps to reduce the debt and ensure that the nation doesn’t fall into further economic turmoil. Hence, it’s necessary for the government to take a proactive stance in mitigating the crisis, so that it can safeguard the welfare of its citizens, while the nation strives to attain a sound financial standing.
