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Sat 23 August 2025
Sat 23 August 2025
UK chancellor Rachel Reeves remains under intense pressure to tackle mounting government debt.
The UK think-tank National Institute of Economic and Social Research (NIESR) had previously forecast that Reeves was on course to miss her borrowing targets by £41.2bn.
The think-tank also posed a solution: Reeves should raise taxes immediately. It recommended "a moderate but sustained increase", including reform of the council tax system to make up the shortfall.
Getting debt on a downward path has been flagged as a priority for the government. In July, Darren Jones, chief secretary to the Treasury, said: “We are committed to tough fiscal rules, so we do not borrow for day-to-day spending and get debt down as a share of our economy."
Read more: UK taxpayers ‘subsidising’ S&P 500, says LSEG boss
The recent sharp selloff in government bonds – known as gilts in the UK – has pushed yields higher, further adding to the debt pile.
One bright spot for Reeves, however, is that government borrowing came in lower than expected in July, offering some relief to the chancellor ahead of the autumn budget.
Public sector net borrowing fell to £1.1bn in July, figures from the Office for National Statistics (ONS), published on Thursday showed. This was lower than the £2.1bn forecast by the Office for Budget Responsibility (OBR) and a consensus forecast of £2.6bn.
More sustained action will be needed to truly tackle the debt pile though. And that's true for many other countries too, particularly in the wake of US president Donald Trump's tariff threats. Data compiled by the International Monetary Fund (IMF) showed the debt-to-GDP ratio – a signifier that the country will face difficulties servicing its debt – of the UK and other leading economies. The UK's ratio stands at 104%, according to the data.
Japan tops the IMF's list by a long margin, with a debt-to-GDP ratio of 235% – more than double that of the UK. Japan has traditionally relied on longer-dated bond yields to navigate its huge debt. However, buyers have recently begun to turn their backs on the Japanese bond market, sparking concern for the country's long-term financial outlook.
Read more: Lower-than-expected UK borrowing offers relief to Reeves as budget looms
Meanwhile, the US has the second-highest debt-to-GDP ratio of the listed countries, with a total of 123%. Worries about the country's mounting debt have been growing throughout 2025. Trump's tax-cut bill, which was signed into law in July, has heightened these concerns.
This chart uses the IMF's data to compare the debt-to-GDP ratio of selected leading economies, revealing stark differences and approaches to public finances.
The UK think-tank National Institute of Economic and Social Research (NIESR) had previously forecast that Reeves was on course to miss her borrowing targets by £41.2bn.
The think-tank also posed a solution: Reeves should raise taxes immediately. It recommended "a moderate but sustained increase", including reform of the council tax system to make up the shortfall.
Getting debt on a downward path has been flagged as a priority for the government. In July, Darren Jones, chief secretary to the Treasury, said: “We are committed to tough fiscal rules, so we do not borrow for day-to-day spending and get debt down as a share of our economy."
Read more: UK taxpayers ‘subsidising’ S&P 500, says LSEG boss
The recent sharp selloff in government bonds – known as gilts in the UK – has pushed yields higher, further adding to the debt pile.
One bright spot for Reeves, however, is that government borrowing came in lower than expected in July, offering some relief to the chancellor ahead of the autumn budget.
Public sector net borrowing fell to £1.1bn in July, figures from the Office for National Statistics (ONS), published on Thursday showed. This was lower than the £2.1bn forecast by the Office for Budget Responsibility (OBR) and a consensus forecast of £2.6bn.
More sustained action will be needed to truly tackle the debt pile though. And that's true for many other countries too, particularly in the wake of US president Donald Trump's tariff threats. Data compiled by the International Monetary Fund (IMF) showed the debt-to-GDP ratio – a signifier that the country will face difficulties servicing its debt – of the UK and other leading economies. The UK's ratio stands at 104%, according to the data.
Japan tops the IMF's list by a long margin, with a debt-to-GDP ratio of 235% – more than double that of the UK. Japan has traditionally relied on longer-dated bond yields to navigate its huge debt. However, buyers have recently begun to turn their backs on the Japanese bond market, sparking concern for the country's long-term financial outlook.
Read more: Lower-than-expected UK borrowing offers relief to Reeves as budget looms
Meanwhile, the US has the second-highest debt-to-GDP ratio of the listed countries, with a total of 123%. Worries about the country's mounting debt have been growing throughout 2025. Trump's tax-cut bill, which was signed into law in July, has heightened these concerns.
This chart uses the IMF's data to compare the debt-to-GDP ratio of selected leading economies, revealing stark differences and approaches to public finances.
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