This chapter is divided into six sections. In the first, we consider the history of public debt in the UK from 1694 (which is arguably when the public debt “started” and from when we have data of some reliability). In the second, we discuss the question why a high level of government debt was not a major problem in the years after the Napoleonic Wars, and in the third, why it was not a significant issue in the post-Second World War period. The fourth section looks at fiscal policy from 1970 to 2010 and the fifth discusses the period from 2010, when the new coalition government announced and started to implement the austerity policies that stimulated much of the debate on the topic. The final section discusses the future of the public debt in the UK. Even before the recent Covid-19 crisis, there were reasons for concern about the implications for the national debt of various trends, such as the ageing of the population. The Covid-19 crisis will entail massive additional borrowing and reduced economic resources, so managing the public finances in the aftermath of the immediate health crisis will constitute a very substantial problem.

An overview of public debt from 1694 to the end of the twentieth century

The Bank of England was incorporated in 1694; its immediate purpose was to provide finance to enable the English government to pursue war against France. An institutional framework for government debt was established, enabling the government to borrow non-trivial amounts of money.

For a history of the national debt in the UK, and some interesting discussion, see Slater (2018). For figures on national debt (relative to GDP) see the Appendix at the end of the book, which provides figures for the debt–GDP ratio for the UK from 1695 to the present day, at five yearly intervals.

A number of things stand out from these figures. There are two major peaks. One is in the aftermath of the Napoleonic Wars; the ratio in fact peaked at 260.29 per cent in 1819. The second major peak is after the Second World War, when it reached 237.94 per cent in 1947.