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The UK doesn’t have a nationwide debt however does as a substitute provide a spread of nationwide financial savings merchandise

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My proof to the Home of Lords Financial Affairs committee on the sustainability of the UK’s nationwide debt is now obtainable on the parliamentary web site;

The proof is as follows:


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  1. This submission is made in response to the UK parliament’s Home of Lords Financial Affairs Committee name for proof, asking the query ‘How sustainable is our nationwide debt?’
  2. This proof is submitted by Professor Richard Murphy, Professor of Accounting Observe at Sheffield College Administration College and director of each Tax Analysis LLP and Finance for the Future LLP. In all these roles I’ve labored on the accounting for and sustainability of the UK’s so-called nationwide debt.


  1. In its early paragraphs, the Committee notes that the UK’s Workplace for Funds Duty said in 2023 that “the 2020s are turning out to be a really dangerous period for public finance”. On this submission I argue in any other case, suggesting that:
  1. The UK doesn’t have a nationwide debt however does as a substitute provide a spread of very fashionable nationwide financial savings merchandise and likewise has nationwide fairness that’s not but recognised within the nation’s accounts.
  2. All of those are sustainable of their present varieties and the holders of nationwide financial savings merchandise from gilts to premium bonds and NS&I accounts most undoubtedly don’t want for the return of their funds to them.
  3. The price of servicing these financial savings accounts and the nationwide fairness is beneath the management of the federal government and whether it is presently thought-about extreme then that’s because of its option to make it so because of the imposition of artificially excessive rates of interest in an pointless try to manage inflation.
  4. The so-called nationwide debt as said by the Workplace for Nationwide Statistics is overstated in worth by roughly £1 trillion.
  5. Nationwide fairness capital exceeds £700 billion.
  6. The ratio of so-called nationwide debt to GDP just isn’t helpful as a instrument for financial administration, not least as a result of the determine for nationwide debt now used is critically overstated because of mismeasurement by the Workplace for Nationwide Statistics.
  7. Consequently, what’s required is that we correctly perceive the character of the nation’s funds, its revenue and expenditure and steadiness sheet and to then use that understanding to draw the extra funding required to fund the funding within the UK that’s now required which might solely be delivered by motion on the a part of the federal government.


  1. Though the decision for proof refers back to the sustainability of the UK’s so-called nationwide debt that is inappropriate. The UK authorities doesn’t have a nationwide debt. As a substitute, it gives financial savings services for banks, pension corporations, life assurancecompanies, overseas governments, and, if they want, people. These financial savings services embrace Treasury bonds, or gilts, Treasury Payments and the merchandise provided by Nationwide Financial savings and Investments (NS&I). The balances on NS&I accounts have risen as follows since 1998, offering proof in assist of the suggestion that these services are engaging to shoppers:
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A graph with orange bars Description automatically generated

Supply: Workplace for Nationwide Statistics public funds databank

  1. Authorities supplied financial savings services have elevated in significance since 2000, when the administration of the so-called nationwide debt and authorities money requirement was transferred from HM Treasury to the quasi-independent Debt Administration Workplace[1].
  2. There isn’t any cause why the preparations in use to handle money necessities previous to 2008, when it was regular for the federal government to borrow from the Financial institution of England utilizing its Methods and Means Account facility moderately than to essentially borrow from monetary markets to steadiness money circulation necessities, can not now be used once more. That is most particularly the case since Brexit and the removing of Maastricht Treaty restrictions on using his association[2].
  3. It’s, because of this, obvious that the size of the UK’s so-called borrowing from monetary markets is a matter for it to now determine upon, and never for markets to find out. The query of the UK’s debt sustainability just isn’t related because of this.
  4. Importantly, the UK authorities can, as a substitute of accepting legal responsibility to 3rd events for funds deposited with it (which is how the present so-called nationwide debt is perhaps most appropriately described), select to create cash to fund its personal actions, leaving these balances on mortgage account with the Financial institution of England each time it needs. That is, in impact, what the quantitative easing course of has achieved, though to satisfy the necessities of the Maastricht Treaty[3] that course of has been closely disguised[4].
  5. The curiosity price of the financial savings merchandise that the federal government provides is beneath the federal government’s personal management. That is clearly the case with NS&I merchandise, however all its different financial savings merchandise are additionally closely influenced by the Financial institution of England base ratewhich the federal government may take management of at any level of time if it so needs by altering the provisions of the Financial institution of England Act, 1998[5]. Brexit additionally gives it with the liberty to do that. The price of curiosity on the central financial institution reserve accounts is also introduced beneath central authorities management in the identical manner.
  6. The U.Okay.’s nationwide debt has been sustainable since 1694 when it was first created[6], and barring the difficulty of three% Struggle Bonds in 1914[7] has by no means suffered an issue with product placement, with all redemptions additionally at all times being rolled over with out issue, that means that questions on sustainability of the debt look like considerably misplaced. Something that has lasted that lengthy, and infrequently at supposed ratios to GDP a lot in extra of these now recorded, just isn’t a matter of concern.
  7. The present ratio of so-called debt to GDP is in historic phrases low. The present stage of so-called nationwide debt, regardless of what’s being claimed, just isn’t unsustainable because the proof from historical past makes clear.

A graph of the government borrowing Description automatically generated


  1. The ratio of nationwide debt to GDP as reported by the ONS is, in any occasion, meaningless and never comparable with information within the time sequence famous above for intervals previous to 2010 due to the affect of quantitative easing. It is because it stays the case that greater than £700 billion[8] of UK authorities bonds are nonetheless owned by a notional subsidiary of the Financial institution of England[9] that’s really beneath the efficient helpful management of HM Treasury[10]. Related gilts in existence, however not in circulation, owned by the Treasury’s Debt Administration Workplace are excluded from all figures for nationwide debt[11], however these beneficially owned by the Treasury through the Financial institution of England, and so equally out of circulation within the financial system are included within the determine for the nationwide debt. The disparity is obtrusive, apparent, and irreconcilable. The nationwide debt is overstated by greater than £700 billion or extra because of this as a result of as a matter of reality, the federal government can not owe itself cash, which cancellation is confirmed by this accounting being adopted throughout the UK Complete of Authorities Accounts[12] that are ready in accordance with Worldwide Monetary Reporting Requirements.
  2. The nationwide debt can also be overstated by virtually £300 billion due to the Workplace for Nationwide Statistics’ declare that there’s aso-called Financial institution of England contribution in direction of that debt for which no matching legal responsibility exists within the audited account of the Financial institution of England. The determine in query represents property that the ONS arbitrarily refuses to just accept the existence of when estimating the nationwide debt. The full sum in query can’t be categorised as debt as a result of there isn’t a identifiable particular person to whom it’s owing. The issue arises as a result of the Workplace for Nationwide Statistics doesn’t use double-entry accounting when estimating the nationwide debt.
  3. Together, the issues referred to within the final two paragraphs recommend that the so-called nationwide debt is £1 trillion lower than the Workplace for Nationwide Statistics presently estimate as a consequence[13].
  4. The most important menace to the so-called sustainability of the UK’s nationwide debt is the notional resale of bonds purchased by the Financial institution of England throughout the course of the quantitative easing period by that Financial institution. They’re doing this with the goal of supporting the excessive rates of interest which have been artificially imposed upon the UK financial system in an pointless try and sort out inflation which has as a substitute given rise to a threat of recession. This programme, the element of which was introduced[14] the day earlier than Kwasi Kwarteng’s ill-fated finances[15] in September 2022, was the precise reason behind the pension liquidity disaster that emerged over the next weekend, which in flip required the creation of emergency extra quantitative easing to unravel the issue[16], however which by the way helped deliver down the federal government of Liz Truss. It was not Kwarteng’s finances however the Financial institution of England’s hasty implementation of quantitative tightening that truly created that disaster. The persevering with sale of greater than £80 billion of extra bonds a 12 months because of quantitative tightening operations is what’s contributing to the present report ranges of bond gross sales within the UK, ensuing within the threat of the market being over-stressed in a manner that standard ranges of sale wouldn’t do[17]. If, as is now essential, Financial institution of England base charges are lowered dramatically to keep away from the danger of deflation and recession then these bond gross sales may stop and because of this there could be no menace to market capability to purchase bonds inthe UK.
  5. There are critical issues with the structuring of the UK’s supposed nationwide debt. Particularly, this can be very troublesome for most individuals to accumulate part of this debt and but it’s obvious that most individuals would want to save in authorities backed financial institution accounts if they might. The proof of that’s clear from the truth that an £85,000 deposit assure needs to be equipped by the federal government to induce folks to save lots of elsewhere. They may solely financial institution with business banks as a result of the federal government has supplied that assure. It’s probably that if the federal government supplied entry via a state financial institution to a full vary of deposit services, present account banking, and (possibly) restricted credit score services, the demand could be important, and the quantity positioned on deposit with the federal government would rise dramatically and any stress on the so-called nationwide debt would completely disappear.
  6. This is able to be notably acceptable when there’s an apparent want for elevated state funding within the UK, which may solely be funded by debt. Social housing, the NHS, training, flood defences, transport, vitality transformation because of this ofclimate change, and far else demand funding and no enterprise would pay for this out of income: they’d borrow. So ought to the federal government. To draw the required funds for this funding. The federal government ought to:
    1. Change ISA guidelines in order that current ISA preparations are suspended henceforth and all tax-free financial savings alternatives supplied by the federal government are made obtainable on the premise that the funds saved be used for the needs of funding nationwide infrastructure growth. At current £70 billion of funds go into ISAs a 12 months with an annual price subsidy when it comes to tax foregone of £5 billion.
    2. Change guidelines on pension tax reduction, in order that in consideration of that reduction being granted, 25% of all new pension contributions ought to equally be required to be invested in bonds, shares, or different buildings that fund nationwide infrastructure growth, whether or not within the state or non-public sectors, topic to a strict taxonomy being in use. Nothing is extra vital to pensioners than having a future the place they will draw down their pension.
  1. It’s instructed that these two modifications to pension to tax incentivised financial savings guidelines may increase £100 billion a 12 months for the federal government by attracting new financial savings into authorities accounts to fund the transformation of the UK financial system[18].
  2. The enhance in financial exercise that the funding funded within the trend famous within the earlier paragraph could be ample to gas development throughout the UK financial system ample to greater than fund the price of any ensuing curiosity cost payable by the federal government out of taxes raised. Fiscal multiplier results arising from the funding made would ship this end result. This integration of fiscal and financial coverage is important sooner or later.
  3. There needs to be a re-definition of the nationwide debt. It ought to not be referred to as the nationwide debt, as a result of that’s not what it’s. It ought to, as a substitute, be referred to as nationwide financial savings, as a result of that’s what these components owing to individuals who save with the federal government really are.
  4. Lastly, these liabilities proven as owing on the Complete of Authorities Accounts[19] to business banks as a consequence of the creation of central financial institution reserve account balances by the Financial institution of England, on the instruction of the federal government, ought to now be correctly described as nationwide fairness, as a result of solely the federal government has this proper to create and inject cash into the financial system and with out it doing so there could be no financial system that would operate. What’s extra, since that sum may solely ever be repaid utilizing cash newly created by the federal government, which might be immediately re-deposited with it, these balances can’t be debt and should subsequently be distinguished from something approximating to that description elsewhere within the nationwide accounts by calling them nationwide fairness.

I shall be blissful to supply the Committee with additional proof in assist of those ideas if they want for it and to seem in particular person earlier than the Committee if that’s the members’ want.

Lastly, for a fuller rationalization of the nationwide debt and points arising from it, please see which explores the problems raised right here in additional however accessible depth.

8 February 2024

[1] gives proof that the earlier mechanisms for manging money necessities nonetheless exists. The federal government overdraft, or so-called Methods and Means account used for this objective till 2008 was quickly expanded to incorporate a £20 billion facility in April 2020. Its earlier use was pale out after 2008. See Any suggestion that the present manner of managing debt by at all times searching for to borrow to make good shortfalls is regular is, because of this, incorrect: it’s a current innovation.
[2] Article 104(1) of the Maastricht Treaty, supported by Article 21.1 of the Protocol sought to restrict use of such preparations however can not apply if the UK chooses that it shouldn’t achieve this.

[3] ibid

[4] See and for an evidence of the QE course of, which is never correctly understood.

[5] See most particularly part 19

[6] content=Whenpercent20thepercent20Bankpercent20ofpercent20England,loanpercent20inpercent201694percent20waspercent208percent25.

[7] See material/1ffa3bb6-ae87-3b6c-aa5c-7a48ca1fc2e2


[9] The Financial institution of England Asset Buy Finance Facility Restricted (APF)

[10] See the letter establishing the APF wherein it was made clear {that a}) the Financial institution of England would act beneath route from the Chancellor of the Exchequerand b) the Financial institution of England could be indemnified for any positive factors and losses that it made because of enterprise exercise on behalf of HM Treasury and c) notice the truth that as a consequence the accounts of the APF will not be consolidated into these of the Financial institution of England as a result of it isw not a subsidiary beneath its management.

[11] gives proof of this.


[13] See for additional rationalization.




[17] See for a dialogue of this difficulty.

[18] See


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