Health-check : Funding of the UK State
At the Good State Project, we also consider the wellbeing of our state's finances. We believe that a happy state is a well-funded, prudently-leveraged state. And sometimes good policies may need to wait before being considered possible at the present time
Reviewing the Structure of our State Finances
Examining the period from 2007 to 2024
🧩 Since 2007, the annual current deficit (the amount by which the annual spending of the state - excluding investment - exceeds amount of incoming taxes and other income) was cumulatively about £1 trillion
📈 Since 2007, total public sector net debt has increased from £0.6 trillion to £2.9 trillion : an increase of £1.3 trillion
❔ So : why did the state need to take on £1.3 trillion of debt?
🏦 It is estimated that around £600 billion of this was entirely due to the Quantitative Easing ("QE") measures program (including the creation of 'reserves' of up to £900 billion that effectively behave like money) created at the Bank of England to support the mess created in the plumbing of the financial system by the global financial crisis in 2007/8
A Curious Finding
🔭 A recent exploration of the state’s finances has revealed something very interesting, both weird and extraordinary. The Good State Project has personally found it challenging in the past to understand properly the state’s finances, our annual budget deficit and how our debt keeps increasing
📚 So, it comes as a real surprise that the state is paying up to £40 billion per year in interest on the QE reserves that were created to support banks and financial markets during the global financial crisis. Firstly, wow, and secondly, why are these payments continuing to be made over 18 years later. It is even more profound that the state’s annual budget deficit appears to run at £20-30 billion. As we understand, many other countries have strongly constrained the QE interest payments made to financial institutions, but the UK continues to pay
🎨 This is a formative piece of work : so all comments are welcome as we unravel this curiosity to make it make sense and help add perspective to current events