Wed, 23 Apr 2025

Wed, 23 Apr 2025 How does the government borrow money?

The government gets most of its money from tax but also borrows when it wants to boost spending.
The UK government borrows money to fund its daily spending and long-term projects, such as infrastructure development. To cover its shortfall between income and expenses, the government raises taxes, cuts spending, or borrows money from financial institutions. Each year, the government spends around £1 trillion, with most of this coming from taxes. However, it often struggles to balance its budget, resulting in a national debt that currently stands at over £2.8 trillion. To borrow money, the government sells bonds, known as "gilts," which are promises to pay money back in the future. These bonds have varying interest rates and are bought by financial institutions both domestically and internationally. In 2025, the government borrowed £151.9 billion, with an external borrowing of £16.4 billion in March alone. This is a significant increase from the previous year's borrowing, which was £131.2 billion. The national debt has more than doubled since the 2008 financial crisis and is currently around the same value as the country's annual GDP. While this may seem concerning, it is still relatively low compared to other leading economies. However, with rising interest rates, the government will have to pay more in interest on its national debt. This could potentially leave less money for public services and has sparked concerns among economists about the government's borrowing levels. Chancellor Rachel Reeves has vowed to address growth amid rising debt costs, but some experts warn that the government may struggle to meet its own borrowing targets due to the increasing cost of borrowing.
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