A country is required to balance its books. Any shortfall between the tax revenue that a country has and public expenditure must be cancelled out by borrowing (from investors and financial institutions at specified rates of interest) and the sum borrowed is then added to the public debt mountain. In the UK, the current public debt stands at an eye-watering £1.8 trillion, or approximately 87.2% of the nation’s GDP. As an aside, before the Global Financial Crisis struck in 2007, the EU set a maximum level for national debt as 60% of GDP for one of the criteria for economic convergence required to permit a nation to join the Euro. Prior to the crisis, UK public debt was in the mid -30% range of the nation’s GDP.
As a result of the Global Financial Crisis, the UK embarked upon a range of austerity measures which was intended to rein-in borrowing with the aim of eliminating the deficit and running a net positive budget. This aim has seen a cap on public sector wages and demands that public services reduce expenditure amongst other things.
The UK’s borrowing has dropped to an 11-year low of £42.6 billion for the financial year 2017-18 (on initial estimate and subject to revision as more data becomes available). In the last financial year, borrowing fell by £3.5 billion, according to the Office for National Statistics. This means that borrowing as a share of GDP (not the debt burden) has fallen to 2.1% from a high of 10% in 2010. The figures exclude funds spent supporting banks that the state has a share in (such as RBS).
The Chancellor, Philip Hammond, placed the standard political spin on the data noting: "Thanks to the hard work of the British people, borrowing is the lowest in over a decade. Our economy is at a turning point with debt starting to fall and people's wages rising, as we build an economy that truly works for everyone."
The borrowing figures have led to speculation that the Chancellor may ease restrictions on public spending, but with the economy now the weakest in the G20 and considerable uncertainty over Brexit, this seems like wishful thinking.