How I learned to stop worrying and love the debt

19.03%. According to the OBR, that is the size of the budget deficit in the UK for 2020, double as big as the deficit at the height of the financial crisis of 2007-08. Most of this borrowing is a deliberate policy decision to mitigate the financial impact of lockdowns and shutdowns. There has been widespread worry, from influential experts in epidemiology and medical science, commentators including some on the government's own scientific advice panel. By contrast macroeconomists, when polled, say that we should do nothing at all to address this—we should just let debt increase. This lack of controversy in the profession is surprising, given the past decade of debate over post-recession austerity, particularly in light of an increased public awareness over questions of fiscal sustainability and much higher debt levels. Though these concerns are understandable, they are misplaced in the current environment, and the economics profession is right to suggest that the focus now should be on addressing the pandemic, not worrying about public debt.

Following the financial crisis of 2007/08, economists once more turned their attention on the consequences of large public deficits and debt levels, with a particular emphasis on the debt to GDP ratio. This ratio measures the level of indebtedness of a country relative to its annual output, and is generally regarded as the best indicator of its ability to service this debt. In the aftermath of the crisis, the UK both massively expanded public borrowing and suffered a sharp GDP contraction. Together, these drove the debt to GDP ratio from 34.2% in 2008 to 62.9% in 2010.

One of the key planks of the coalition government from 2010 to 2015 was 'austerity': cutting government spending in order to reduce the deficit. This was intended to first slow down the rise in the national debt, then finally turn it around and see it shrink, at least as a percentage of GDP. Despite this, the debt to GDP ratio continued to rise during this period because the government could not reduce borrowing to zero too aggressively and the growth rate of GDP was very modest; both factors contributed to a high of 82.9% in 2017. On paper, the current outlook appears even more concerning; all of the effort made by previous governments to reduce borrowing and bring down public debt has been reversed in one fell swoop. Public debt is forecast to reach 108% of GDP by March 2022.