During the white heat of the global financial crisis in 2009, an economics book written by two Harvard academics went viral. This Time is Different by Kenneth Rogoff and Carmen Reinhart charted 800 years of financial booms and busts, using one of the most expansive datasets ever, to come up with an explosive conclusion: countries with a debt-to-GDP level exceeding 90 per cent suffered from cratering growth, averaging -0.1 per cent a year. Those with lower debt burdens — in the range of 30 per cent to 60 per cent of GDP — grew at an average pace of 3 per cent to 3.7 per cent.
The stark finding seemed to prove there was a clear debt-controlled growth limit on economies at a time when the UK, the US and the eurozone were pumping money into their crisis-hit economies. In 2009, most were approaching the perilous 90 per cent cliff edge.
Carmen Reinhart co-wrote the popular economics book with Kenneth Rogoff
Rogoff and Reinhart’s work had an immediate impact on the world’s most powerful finance ministries and central banks. The 90 per cent trigger was used as ballast for austerity in the UK and was repeatedly cited by George Osborne, then Tory shadow chancellor in 2010, who warned the country was two years’ away from a debt-induced peril, citing the book’s findings.
But there was one problem: it wasn’t true. In 2013, after years of sharp fiscal contraction in the UK and eurozone, three doctoral students at the University of Massachusetts, Amherst, tried to replicate Rogoff and Reinhart’s findings. Instead, they discovered the authors had made rudimentary spreadsheet errors that excluded some high-debt, high-growth countries after the Second World War from their calculations, and they had overweighted smaller economies compared to larger ones. When the students corrected the errors, they found that rather than stagnant or negative growth, countries with debt ratios above 90 per cent experienced average growth of 2.2 per cent a year.
Rogoff, a former chief economist at the International Monetary Fund, and Reinhart, who held the same position at the World Bank, defended their broad conclusion that high-debt economies grow more slowly than their lower-debt counterparts. They denied that 90 per cent of GDP was a “magic threshold that transforms outcomes, as conservative politicians have suggested”.
The controversy raged in the pages of the financial media and became another touchpoint in economic policy debates. However, in 2025, when the 90 per cent threshold had long been cleared by every G7 economy barring Germany, the case is closed. If there is a hard ceiling on when high debt causes a recessionary spiral, indebted rich world countries keep proving the threshold is further and further away.
Since 2009, the average public debt level in the G7 has risen from just below 95 per cent of GDP to 147 per cent, according to the IMF. Japan’s debt pile is the highest in the rich world at nearly 230 per cent of GDP and Trump’s high spending US is at 120 per cent. The UK’s debt ratio has been stuck at the 100 per cent mark since the start of the decade — the highest since the post-war decades. The country’s overall stock of debt, which is close to £3 trillion, has trebled over the past 20 years, rising at the fastest pace of any advanced economy, according to Oxford Economics.
Like many other governments, the UK was forced to turn on the fiscal spigot during the pandemic and the global energy crisis and is facing a growing bill for rearmament and defence spending until the end of the decade. Globally, public debt rose by $21 trillion in the first half of this year — the fastest pace since the pandemic-era emergency — hitting a record $338 trillion, according to the Institute for International Finance. Governments are also piling on record levels of debt at a time when interest rates have hit multi-decade highs, worsening their debt sustainability. “Debt levels, cost of debt, and fiscal trajectories have all deteriorated [in the last 18 months],” Rajeev Sibal at Morgan Stanley says.
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Yet no major debt crisis, on the scale of the eurozone’s sovereign debt meltdown in the 2010s, has yet happened in the rich world. Economists cite factors like a new “normal” of high indebtedness led by the US and Japan, the promise that central banks will come in to bail out their governments, and the promise of an AI-led productivity miracle as factors keeping a lid on investors’ debt panic.
Yet the UK is still more vulnerable than most. The bond vigilantes have circled the country since Liz Truss’s mini-budget in 2022 and the level of UK gilt yields, a measure of government borrowing costs, has become an ever present consideration for Treasury officials. Unlike most of her finance minister peers in the G7, Rachel Reeves has to continually prove her fealty to her fiscal rules to keep the country’s foreign bondholders on her side.
“With the exception of Japan, which does not rely on foreign investors, most other G7 governments are wary of bond vigilantes and reluctant to add fiscal stimulus. The UK shows why,” said Monica Defend, of the Amundi Investment Institute, Europe’s largest asset manager. She added Reeves’s expected £30 billion to £40 billion fiscal consolidation at the budget next week and her broader promises of “discipline makes us bullish on gilts, which are still near their cheapest levels in a decade against US Treasuries”.
Whatever happens in the budget, the UK’s high indebtedness is here to stay. The Office for Budget Responsibility is predicting a gradually rising trajectory that could hit 270 per cent of GDP by the 2070s. This is due to long-term dynamics such as an ageing population demanding greater social and healthcare spending, and fiscal outlays on new areas like defence and climate change.
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The high debt burden is already forcing the chancellor into painful choices. The UK is on course to run a primary budget surplus — a measure of government spending when excluding debt payments — for the first time since the start of the century in order to stabilise the public finances. This makes the UK a major outlier in the rest of the developed world — fiscal policy in the US, Japan, Germany and across most of Europe will be expansionary in 2026. But even the planned sharp cuts in day-to-day spending laid out before the budget “may not be enough to stabilise debt trajectories”, said Sibal.