(How) can the UK survive the debt crisis?

Government debt in the UK is now higher than at any time since the early 1960s. With the economy growing at a snail’s pace and after a series of shocks – from the financial crisis of 2008 through to Covid and the energy-price crisis in recent years – public sector net debt (PSND) has risen from around 35 per cent in 2007 to about 94 per cent in 2026. Bailing out banks, paying for furlough and other measures during lockdown, subsidising energy bills and much more have contributed to an immense worsening of the country’s finances. As we did 50 years ago, will we need to go cap in hand to the IMF for a bailout – and some enforced economic restructuring?

This leaves the Labour government will precious little room for manoeuvre. For example, Keir Starmer tried to talk up expanding defence expenditure after pressure from President Trump, yet after months of wrangling, his defence secretary, John Healey, resigned in protest at the miserly amount of additional spending on offer – closely followed by Starmer.

Indeed, the interest on that debt is now running at around £110 billion per year – equivalent to around eight per cent of all government spending or 3.7 per cent of GDP. That is more than day to day spending for a large government department like Education (£95 billion) and far more than for Defence (£39 billion). The UK is ever more reliant on international lenders, who in turn are demanding an interest-rate premium compared to other developed economies. Moreover, there seems to be little in the way of a plan to turn the tide. For example, when very modest cuts to welfare benefits were proposed, the Labour back benches soon put a stop to them.

But is the UK’s problem really that unusual? Of the G7 major economies, the UK is sixth in terms of debt to GDP ratio; only Germany (around 63 per cent) has a lower debt pile compared to the size of its economy. The US debt is around 122 per cent of GDP (and a hugely larger debt in terms of hard cash) while France (113 per cent), Italy (135 per cent) and Japan (236 per cent) all beat the UK. Moreover, unlike France and Italy, the UK issues debt in its own currency. If those countries can manage to negotiate those debts, why can’t the UK?

What would be the trigger for a debt crisis? Will our national debt be a slow drain on the rest of the economy or are things going to come to a head soon? And if something has to give, what would it be: welfare spending, healthcare and more?