British debt dominated headlines on Tuesday, when the Office for National Statistics announced the UK’s net public debt reached £1.004 trillion in December 2011—an all-time high.
In a vacuum, a £1.004 trillion sounds huge, and that sheer magnitude has some commentators questioning its implications for the British economy. However, without additional context, the debt load’s absolute size doesn’t mean much—a better perspective is scaling relative to the size of the economy as measured by Gross Domestic Product (GDP) and viewing that figure with an appropriate historical frame of reference.
The UK’s final 2011 GDP tally isn’t in yet, but according to The Guardian, the December debt total is around 64.2% of GDP. How does that compare with historical figures? Exhibit 1 plots the UK’s net public debt as a percentage of GDP from 1700 through 2010.
Exhibit 1: UK Net Public Debt as a Percentage of GDP, 1700 – 2010
Source: HM Treasury, UK publicspending.co.uk; as of March 2011.
Relative to GDP, British debt has increased over the past few years, but today’s levels remain far below historical highs—the UK has regularly had higher relative debt over the past three centuries without ill effect over time.
For example, think about the historical context of the big hump from 1750 to 1850—the British Empire was the global military and economic superpower, all the while maintaining relative debt two to nearly five times higher than today. The Industrial Revolution began in Britain during this period, only later spreading to continental Europe and America—countless manufacturing and other technical innovations emerged from Great Britain. And the UK has remained a major global player in the century and a half since.
In short, if Britain could prosper then while regularly exceeding three times today’s relative debt, the current level shouldn’t necessarily prove problematic over time. It’s possible Britain may go on to struggle, but if so it won’t be singularly due to their debt.
