Wednesday 10 September 2025 11:55 am
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Wednesday 10 September 2025 11:56 am
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The Bank of England’s former Governor has raised alarm at the UK’s high levels of debt.
The UK’s national debt load is “not in a comfortable position” and the government faces a “real challenge” in managing fiscal policy, the former Governor of the Bank of England has said.
Speaking to Lords at a committee hearing on Wednesday, Mervyn King said the UK was in a “much stronger position” before the financial crisis in 2008 and warned that most of the world’s largest economies were in a “mess”.
King said the financial system was still ready to deal with any incoming crisis though he warned the pressures on the economy posed a greater risk given the high costs of government interventions in crises.
He also hinted that the government should make reducing the national debt a higher priority as the Autumn Budget approaches.
“All G7 countries ought to be very concerned about the high level of national debt relative to GDP,” King said.
“It would certainly make it more difficult and more costly to engage in the interventions that we saw both in covid and in the financial crisis, where the whole point of bringing down debt to GDP before the financial crisis was to enable it to jump up if necessary in the event of a crisis.
“Some people have drawn comfort from the fact that the recent rise in long term interest rates has been true across the G7. But that simply means that we are all in the same mess, rather than just the UK.”
King pointed out successive Tory and Labour governments had “not managed to achieve” pledges to reduce the national debt as a share of GDP, making the UK less likely to protect Brits from another economic crisis.
He also said that the UK, along with other Western countries, faced problems that only developing economies receiving emergency IMF loans previously had.
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While King said he believes the UK could “cope” in the case of future hits, he said: “I think we are not in a comfortable position.”
UK paying £105bn to service debt this year
The UK’s national debt as a percentage of GDP is estimated to be 96.1 per cent, having fallen slightly under the previous Tory government before climbing since March.
The government is also set to pay more than £105bn on servicing its debt this year, which is just short of the total budget for education.
Fresh data on the state of public finances is expected to be released next week.
Chancellor Rachel Reeves is widely expected to raise at least £25bn in taxes to plug a hole in public finances but Wall Street analysts are warning that raising small revenue-raisers, such as sin taxes and levies on pension pots, could keep interest rates higher and fail to keep the public purse in check.
“The historical record shows that growth tends to hold up better following spending cuts than revenue increases,” Goldman Sachs’ Sven Jari Stehn said.
A number of government bond traders have also called on the government to prioritise spending cuts over tax hikes, which could persuade markets that Labour was stabilising borrowing levels and maintaining credibility.
King also took aim at market money-makers operating at banks, claiming he didn’t find it “particularly attractive” for bankers to focus on trading a source of profit rather than focusing on lending or other “basic banking activities”.
Quizzed on whether regulatory burdens had made it more difficult for smaller companies to grow, King said there should be greater emphasis on creating a Silicon Valley-like “marketplace” for borrowers and lenders to meet and exchange ideas.
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Watch: Are we on the brink of a financial crisis?
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