{"id":95187,"date":"2026-08-26T07:01:47","date_gmt":"2026-08-26T06:01:47","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=95187"},"modified":"2026-08-26T07:01:47","modified_gmt":"2026-08-26T06:01:47","slug":"3-trillion-of-debt-so-what","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/08\/26\/3-trillion-of-debt-so-what\/","title":{"rendered":"\u00a33 trillion of debt? So what?"},"content":{"rendered":"<p>The national debt is nearing \u00a33 trillion, and almost everything said about that claim is wrong. It is not a debt in the way a household mortgage or a credit card is a debt. It is just the nation's savings.<\/p>\n<div>\n<p>Here is what that \u00a33 trillion is actually made of: around \u00a32.2 to \u00a32.3 trillion of government bonds held by pension funds, banks and insurance companies; over \u00a3200 billion in National Savings; the physical cash in your pocket; and more than half a trillion pounds sitting in the reserve accounts commercial banks hold at the Bank of England. None of it is money the government \"owes\" in the sense of being unable to pay. The government creates sterling, so it cannot run out of it, and it cannot go bankrupt.<\/p>\n<p>So why do we panic about the interest bill? The government can always pay the interest, because it can always create the money to do so. The cost is a policy choice, not a fact of nature.<\/p>\n<p>The Bank of England sets the rates that drive that \u00a3100 billion-a-year bill, and by cutting them, it could save at least \u00a320 billion a year.<\/p>\n<p>Meanwhile, over \u00a320 billion a year is paid to commercial banks on their reserves, a subsidy to bank profits that other central banks have already largely abandoned.<\/p>\n<p>The real danger runs the other way. Trying to \"reduce the debt\" means higher taxes or deep spending cuts. These could create a recession, falling private wealth, and a poorer economy, with no improvement in the government's financial position.<\/p>\n<p>The national debt is not our burden. It is the savings facility that lets pension funds, insurers and savers hold their money safely, and without it we would all be much poorer. The lie that this debt is a burden is the excuse used to justify austerity, and it is time we stopped believing it.<\/p>\n<p><iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/XONKz8OuCOw?si=XC1q7xC9EpMOWiSD\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p>This is the audio version:<\/p>\n<p><iframe title=\"\u00a33 trillion of debt? So what?\" allowtransparency=\"true\" height=\"150\" width=\"100%\" style=\"border: none; min-width: min(100%, 430px);height:150px;\" scrolling=\"no\" data-name=\"pb-iframe-player\" src=\"https:\/\/www.podbean.com\/player-v2\/?i=vuzpw-1b4313a-pb&from=pb6admin&share=1&download=1&rtl=0&fonts=Arial&skin=f6f6f6&font-color=auto&logo_link=episode_page&btn-skin=c73a3a\" loading=\"lazy\"><\/iframe><\/p>\n<p>There is no Debate Ammunition for this video, but there is this infographic:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-95197\" src=\"https:\/\/www.taxresearch.org.uk\/Blog\/wp-content\/uploads\/2026\/08\/UK-debt-at-3-trillion-550x824.png\" alt=\"\" width=\"550\" height=\"824\" srcset=\"https:\/\/www.taxresearch.org.uk\/Blog\/wp-content\/uploads\/2026\/08\/UK-debt-at-3-trillion-550x824.png 550w, https:\/\/www.taxresearch.org.uk\/Blog\/wp-content\/uploads\/2026\/08\/UK-debt-at-3-trillion-200x300.png 200w, https:\/\/www.taxresearch.org.uk\/Blog\/wp-content\/uploads\/2026\/08\/UK-debt-at-3-trillion-768x1151.png 768w, https:\/\/www.taxresearch.org.uk\/Blog\/wp-content\/uploads\/2026\/08\/UK-debt-at-3-trillion-267x400.png 267w, https:\/\/www.taxresearch.org.uk\/Blog\/wp-content\/uploads\/2026\/08\/UK-debt-at-3-trillion.png 1024w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p>This is the transcript:<\/p>\n<hr \/>\n<p>We\u2019re told that the UK\u2019s national debt is now nearing \u00a33 trillion. But calling this a national debt creates entirely the wrong impression. This country is not in debt. This country creates all the money that we use. It can never be in debt because it can always repay the money at a moment\u2019s notice if it wished to. So this is all about a savings facility.<\/p>\n<p>To think of the national debt like a household mortgage or a credit card bill is just wrong, even though that\u2019s what all our politicians do all the time, and that\u2019s what our financial journalists do all the time. But they are wrong. This so-called national debt is better understood as the nation\u2019s financial savings held with the government, and that\u2019s what I\u2019m talking about in this video.<\/p>\n<p>How are these savings held with the government? Well, there are a variety of ways. Some are held as government bonds or gilts. That\u2019s the biggest part of the money. That amount is issued by the government to the commercial financial markets, made up of banks, pension funds, life insurance companies, and so on. And that figure comes to around two point three trillion pounds or so at present.<\/p>\n<p>Some of the money is held through National Savings and Investments. That\u2019s over \u00a3200 billion of the national debt, or \u00a30.2 trillion, and that money is provided by individuals. You may have a National Savings account. So might somebody you know who has a Premium Bond, because Premium Bonds are part of the national debt.<\/p>\n<p>You might also hold some of the national debt because you hold it in cash. You literally have notes, and that is part of the national debt as well.<\/p>\n<p>And some of this money is held as central bank reserve account balances held by our commercial banks with the Bank of England, and they make up over half a trillion pounds at present.<\/p>\n<p>These are all ways of holding government-created money as savings. Without exception, every one of these things is a savings account balance. Just as you can have a deposit account with a bank or a bond with a building society, these are savings accounts with the government, only they\u2019re much more valuable to large organisations than deposit accounts with banks. Why is that? Because the government only guarantees the repayment of \u00a3120,000 in any deposit account. And if you\u2019re putting on a couple of billion pounds in your savings account with a bank, you don\u2019t want to do that because you might lose it if the bank goes bust. So you buy government bonds instead. That\u2019s why government bonds exist. That\u2019s absolutely essential to understand.<\/p>\n<p>The government spends the money that we use into existence. That\u2019s how we get our money supply. That is how the pound is created. The government creates it when it spends. The Bank of England effectively creates it on the government\u2019s instruction because the Bank of England is a part of the government. And then the government takes some of that money back out of the economy through taxation.<\/p>\n<p>But when government spending exceeds tax collected, and it does most years for a very good reason, and that is because we need a growing money supply to deal with the fact that we do have continual inflation in our economy - which most economists agree is a good thing - some of that money that the government has spent is then left in the economy for it to use.<\/p>\n<p>But eventually that money is saved. Let\u2019s be clear, somebody eventually doesn\u2019t spend it. Somebody saves it, and they\u2019ve got to put it somewhere, and that is why the government provides this secure savings facility for pension funds, life insurance companies, banks in particular, but also overseas governments and people who want to trade with the UK from outside this country who need a place to deposit the money that they too have earned in sterling.<\/p>\n<p>And let\u2019s be clear, the government does not need to issue these bonds. It does it as a favour to savers. And I\u2019m going to make that point more than once in this video, but I\u2019ll start off making it here. Why does the government not need to issue the bonds? Well, that\u2019s because the government does not need to borrow money to be able to spend. It does not, in fact, ever borrow money to be able to spend, and that\u2019s because the government creates money when it spends.<\/p>\n<p>So bonds do not then provide the government with a way to fund its spending. Instead, they provide people and financial institutions with a safe place to save the money they\u2019ve got as a consequence of government spending. The government actually creates the money that is then deposited with it. We have to get this circle the right way round. It\u2019s not borrowing that funds spending. It\u2019s spending that funds the borrowing, or as we should properly call it, the saving. And that\u2019s how the money that comes to be deposited by pension funds and others with the government comes to exist. The government doesn\u2019t borrow it to spend. It provides a safe place for people to save. I can\u2019t say that often enough because people don\u2019t seem to understand it.<\/p>\n<p>So what about the interest bill on this supposed borrowing that the government undertakes, but which is actually interest paid on savings accounts?<\/p>\n<p>First of all, let\u2019s make it clear: the government will never have a problem paying this interest. Why is that? Because it can create the money to make the payment whenever it likes. That is a facility within its power to do. The government can\u2019t go bust because of its interest costs. Let\u2019s understand that straight away.<\/p>\n<p>And let\u2019s also understand, as a result, that having to pay interest does not limit the capacity of the government to do anything else. There is no finite sum of money available to the government, and it must not spend any more. That is complete nonsense. It\u2019s a fiction made up by right-wing economists who want to shrink the size of the government. But if the government wants to pay nurses or teachers or build something to manage climate change as well as pay interest on these deposits, it can.<\/p>\n<p>The limitation on whether it can pay nurses, teachers, and fund climate change is not the cost of borrowing because that\u2019s just money. The limitation on those other activities is: are their teachers available? Are there nurses available? Have we got the engineers to build the facility to manage climate change? The constraints are entirely different and wholly unrelated to each other. So let\u2019s be clear. This interest rate bill does not stop the government from doing anything at all.<\/p>\n<p>But let\u2019s just discuss the size of that bill. Who sets the rate on the bill? Essentially, the Bank of England does. It sets the bank base rate for this country, and all other interest rates are related to that. Let\u2019s not pretend otherwise. People say the market sets rates and the government doesn\u2019t and the Bank of England doesn\u2019t, but that\u2019s not true. Look at the link between market interest rates and the Bank of England\u2019s base rate, and you will find that market rates always follow what the Bank of England offers.<\/p>\n<p>Now, there might be a difference, and there might be moments when the Bank of England will be offering a rate higher than the market, although that\u2019s rare. And there might be different times when the difference between the Bank of England rate and the market rate is quite big. But again, that\u2019s also quite unusual. In essence, the Bank of England influences the interest rate paid on government debt more than anything else.<\/p>\n<p>And the Bank of England is a government agency. So if we are paying a lot of interest at this moment on government debt or on these savings accounts, which is what we should properly call it, that\u2019s because the Bank of England has chosen to set interest rates in this country very high, and it\u2019s a signal that, in fact, we should be cutting interest rates. If they\u2019re too expensive for the government, they\u2019re too expensive for everyone else as well.<\/p>\n<p>Let\u2019s understand that essential fact, and let\u2019s have the government tell the Bank of England, \u201cCut the interest rate.\u201d It\u2019s got the power to do so. It can intervene under the terms of the Bank of England Act 1998, and say there is, for example, at this moment, a cost-of-living crisis and demand that the interest rate be cut as a result, and the Bank of England basically has to agree, although eventually Parliament would also have to back up the government, but you can guarantee that it would.<\/p>\n<p>In other words, the government could cut the cost of the interest paid at this moment, which is in excess of a hundred billion pounds a year, and it could save tens of billions of pounds a year as a result. How many tens of billions? At least \u00a320 billion a year, maybe more. The point is the government is unnecessarily paying high interest at this moment as a consequence of a policy choice by the Bank of England, but which it has endorsed, and that is not an unavoidable consequence of the debt. It is an unavoidable consequence of bad policy.<\/p>\n<p>There is another issue to consider here with regard to the cost of interest as well. I\u2019ve already mentioned that half a trillion pounds, or \u00a3500 billion, in other words, of the money that makes up our national debt, the savings that are deposited with the government, comes from our large commercial banks. You know, their names: Barclays, Lloyds, HSBC, all the others that occupy our high street. They deposit money with the Bank of England so that they can pay each other. But the deposits in question were created, in effect for them, by the government after 2008 as part of the bailout process that took place at that time because the banking system nearly fell over, and they were created again after 2020 when we were at the same risk as a consequence of COVID.<\/p>\n<p>Now, this money does, however, have interest paid on it by the government, at a cost of over \u00a320 billion a year. Now, what could you do with \u00a320 billion a year? I think you would rather it was used on something useful for society, but at present it\u2019s used to subsidise the profits of our big commercial banks. I think that\u2019s wrong.<\/p>\n<p>I think the government should be doing something which is done by the European Central Bank and by the Bank of Japan, and that is only paying an interest rate on part of these balances, with most of it having little or no interest paid at all. They could achieve their policy objectives for having interest paid on these accounts with only part being subject to payment, and the rest could be virtually interest-free to the government. The consequence would be a saving of well over \u00a310 billion a year again.<\/p>\n<p>So the fetish about the cost of this interest is actually misplaced. We could bring down the rate on all the cost of government deposits, that is what is commonly called government debt, if we wanted to, by the Bank of England cutting their rate. And we could cut the cost of that money which is deposited by commercial banks with the government, by reducing the rate on the central bank reserve accounts.<\/p>\n<p>But we are not doing that, and instead, people are getting very upset about the fact that we appear to have \u00a33 trillion of debt, and they\u2019re demanding it be repaid. They\u2019re making stupid claims like if we have another credit crisis, the government will run out of money, when that is technically impossible.<\/p>\n<p>I did an interview recently where the other guest was the Institute for Fiscal Studies, and they made that suggestion, and if I\u2019m honest with you, they made themselves look very stupid as a result because the government can never run out of money. It\u2019s the only agency that\u2019s allowed to create the stuff. We are dependent upon it. It is not dependent upon us.<\/p>\n<p>But people do still say they want to cut the amount of debt, but I don\u2019t think they understand what they\u2019re talking about, because if you want to cut the size of government debt, you have to withdraw money from the economy. There is only one way for the government to withdraw that money from the economy, and that is to increase the amount of tax we pay.<\/p>\n<p>Now, those who demand that the debt be reduced are also those who are demanding that the amount of tax we pay be cut. So, in fact, what they\u2019re saying is that, to achieve the outcome they want, not only should tax be cut, but the level of government spending should be cut even more so that we run what is called a government surplus. That means the government takes more in tax out of the economy than it spends into it to provide us with education, with health and all the other things on which we rely. That is what they\u2019re asking for.<\/p>\n<p>But this has one almost inevitable consequence. It would create a recession. It could create deflation. It could force households and businesses to save less and borrow more to maintain their spending, and that would reduce our economic resilience. We would, if people did not borrow more, see demand fall. We would then see lower sales, less investment and fewer jobs, and we would then see us moving towards a recession.<\/p>\n<p>At the same time, because government-created money is private wealth, we would see a reduction in private wealth, and we would not see any real change in the financial situation of the government because the government doesn\u2019t rely on this money to fund its activities. I\u2019ve already pointed that out. It takes deposits. It doesn\u2019t use them to fund what it does.<\/p>\n<p>So we would create an absolute financial nightmare for the economy, all for the sake of reducing the debt when there is no reason to reduce the debt, and its cost is entirely manageable if we want.<\/p>\n<p>So why are people obsessing about the fact that the debt is now \u00a33 trillion? Because they don\u2019t understand what it is. They don\u2019t understand it is savings balances. They don\u2019t understand it does not fund the government. They do not understand that its cost is within the government\u2019s control. They do not understand that the cost does not constrain other government activity. We are not facing an either\/or: we do this, or we can\u2019t do that, with regard to payment of interest. Payment of interest does not stop us having the NHS we want. We just have a lot of people who don\u2019t understand that all that the so-called government debt is, is organisations which they support, like pension funds, life insurance companies, private banks, and foreign governments who save here to facilitate trade, saving with the government to make all those things possible.<\/p>\n<p>Take the government debt away, and those things aren\u2019t possible. We would have a much poorer, much more limited economy. We would all be worse off. Is that what you want? Well, I don\u2019t, but what do you think?<\/p>\n<p>There is a poll down below, as ever. Please do let us have your views. Please do like and share this video. Please do subscribe to the channel and hit that bell button so you\u2019re told when we make another video, and if you\u2019d like to buy Tom and me a coffee so we can keep making these, that would be great.<\/p>\n<hr \/>\n<p>Poll<\/p>\n<div id=\"polls-504\" class=\"wp-polls\">\n\t<form id=\"polls_form_504\" class=\"wp-polls-form\" action=\"\/Blog\/index.php\" method=\"post\">\n\t\t<p style=\"display: none;\"><input type=\"hidden\" id=\"poll_504_nonce\" name=\"wp-polls-nonce\" value=\"c6d5e61dd3\" \/><\/p>\n\t\t<p style=\"display: none;\"><input type=\"hidden\" name=\"poll_id\" value=\"504\" \/><\/p>\n\t\t<p style=\"text-align: center\"><strong>What do you think the UK\u2019s national debt really represents?<\/strong><\/p><div id=\"polls-504-ans\" class=\"wp-polls-ans\"><ul class=\"wp-polls-ul\">\n\t\t<li><input type=\"radio\" id=\"poll-answer-2195\" name=\"poll_504\" value=\"2195\" \/> <label for=\"poll-answer-2195\">Money the government must repay<\/label><\/li>\n\t\t<li><input type=\"radio\" id=\"poll-answer-2196\" name=\"poll_504\" value=\"2196\" \/> <label for=\"poll-answer-2196\">Private sector financial savings<\/label><\/li>\n\t\t<li><input type=\"radio\" id=\"poll-answer-2197\" name=\"poll_504\" value=\"2197\" \/> <label for=\"poll-answer-2197\">A mixture of both<\/label><\/li>\n\t\t<li><input type=\"radio\" id=\"poll-answer-2198\" name=\"poll_504\" value=\"2198\" \/> <label for=\"poll-answer-2198\">I\u2019m still not sure<\/label><\/li>\n\t\t<\/ul><p style=\"text-align: center\"><input type=\"button\" name=\"vote\" value=\"   Vote   \" class=\"Buttons\" data-poll-id=\"504\" data-poll-action=\"vote\" \/><\/p><p style=\"text-align: center\"><a href=\"#ViewPollResults\" data-poll-id=\"504\" data-poll-action=\"result\" title=\"View Results Of This Poll\">View Results<\/a><\/p><\/div>\n\t<\/form>\n<\/div>\n<div id=\"polls-504-loading\" class=\"wp-polls wp-polls-loading\"><span class=\"wp-polls-spinner\" aria-hidden=\"true\"><\/span> Loading ...<\/div>\n\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The national debt is nearing \u00a33 trillion, and almost everything said about that claim is wrong. It is not a debt in the way a<br \/><a class=\"moretag\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/08\/26\/3-trillion-of-debt-so-what\/\"><em> Read the full article&#8230;<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[70,47,46,136,204,35,16,147,118,174,224,106,223],"tags":[],"class_list":["post-95187","post","type-post","status-publish","format-standard","hentry","category-banking","category-bonds-2","category-bonds","category-city-of-london","category-economic-justice","category-economics","category-ethics","category-inequality","category-labour","category-modern-monetary-theory","category-neoliberalism","category-politics","category-politics-of-care"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95187","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=95187"}],"version-history":[{"count":5,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95187\/revisions"}],"predecessor-version":[{"id":95208,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95187\/revisions\/95208"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=95187"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=95187"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=95187"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}