UK is in debt denial – now we’re about to get a brutal reality check

Dave Ramsey helps American who's a million dollars in debt

The UK’s debt is now roughly the same as our annual economic output, for the first time since we started to get a grip on our Second World War debts. We owe around £2.57trillion and still borrow around £20billion a year to make ends meet. This can’t end well.

As interest rates rise, the cost of servicing those debts has rocketed. For every £100 you pay in tax, £10 goes towards servicing the interest on the nation’s borrowings.

It’s not a great use of your money, is it?

I’ve just been reading a self-help guide warning of the dangers of debt denial, and alerting people to the warning signs that they may be suffering from it. It’s aimed at individuals, but could just as easily apply to the UK.

Here are the five signs of debt denial, and why we’re all caught in its grip.

1. You tell yourself all will be fine, but don’t do anything about it. We are certainly guilty of this.

Over the last couple of decades, as the West’s debt burden grew and grew, economists have been assuring us it doesn’t matter.

A convenient new economic concept sprang up – particularly popular on the left – called modern monetary theory, or MMT. Put crudely, this states that sovereign countries can run up all their debts they like, because they can simply print more money to pay them off.

Which is pretty much what the Bank of England, US Federal Reserve and European Central Bank have been doing, of course, via quantitative easing, or QE.

Now we’re discovering that debt does matter, as investors demand higher rates of interest to buy our government bonds.

The £110billion we spend on debt interest every year is enough to double the state pension for everyone.

That’s only the start of our debt denial.

2. You can’t resist a splurge. Worrying about money all the time is soul destroying. So when people do get a bit of cash in their pocket, they let loose.

Western countries were deep in debt before Covid struck. Suddenly, Chancellor Rishi Sunak found hundreds of billions of pounds in his back pocket, and used it to fund repeated lockdowns.

Wasn’t it liberating, discovering all that cash was there after all? Not for long. Sunak’s spree has left us in even more trouble than before.

3. You start taking unnecessary risks. People in debt dream of finding a quick way out of their problems. They suddenly start buying books of lottery tickets. Or trade risky assets like Bitcoin. Or conjure up impossible business projects.

The UK had “Calamity” Liz Truss. In her brief and deluded stint running the country, she thought UK could gamble its way to riches, by borrowing yet more money and using it to fund tax cuts.

Within days, she had bought the UK to the brink of meltdown. This was the gambler’s approach to getting out of debt, and it never ends well.

4. You fight over money. Debt can destroy families, especially if one partner blames the other for their financial troubles.

The same thing happens to countries. For years to come, we will be fighting over who gets the biggest share of the shrinking pie. Will it be pensioners? Benefits claimants? Young people? Children? Roads? Schools? Defence? The NHS?

We will also row over who pays – and which taxes to hike.

If Labour takes power, its members will fight among themselves, as they argue over how hard to bash the rich, and who qualifies as rich. It’s not going to be pretty.

5. You keep dreaming up ways of making your money stretch. Wasn’t that what QE was about? Making the money stretch. Tory austerity certainly was. So is every dreary political row over NHS reform, the state pension triple lock, HS2 and just about everything else.

Yesterday, Shadow Chancellor Rachel Reeves told us a whole bunch of fairytales over how she would make the money stretch. 

We can’t afford to be in denial any longer. Nor can our politicians. Unless we deal with it, debt will destroy us. As with any addiction, admitting we have a serious problem is the first step to solving it.

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