Debt hits 100% of GDP – its highest stage as a share since 1961

Rachel Reeves was yesterday urged to stop talking the economy down – as figures showed Britain’s debt pile climbed to 100 per cent of gross domestic product (GDP).

Debt now stands at £2.77trillion and is at its highest level as a percentage of GDP since 1961.

The grim milestone revealed by the Office for National Statistics (ONS) deepened fears that the Chancellor will announce painful tax increases in next month’s Budget. But leading economists said that growing the economy was the best way to mend the UK’s public finances – and urged caution over potentially damaging tax hikes.

Mohamed El-Erian, chief economic adviser at asset manager Allianz, said the Government would need to take measures ‘that will be painful for some’.

But he told the BBC that the only ‘good’ way out of debt was economic growth.

Chancellor of the Exchequer Rachel Reeves leaves Downing Street on September 3, 2024

Mohamed El-Erian, chief economic adviser at asset manager Allianz, told the BBC that the only ‘good’ way out of debt was economic growth

It came as separate figures showed consumer confidence plunging as a result of fears over the Budget on October 30 – which could see capital gains tax, inheritance tax and pensions tax relief targeted by the Chancellor.

The Government has warned there will be tough measures and claimed that it has inherited the worst economic situation since the Second World War.

Mr El-Erian said Labour’s doom and gloom could ‘absolutely’ have a damaging impact.

‘The less confident you are about the economic outlook, the less willing you are to spend… then that starts to cause an economic downturn,’ he said.

And economist Gerard Lyons, former adviser to Boris Johnson, said: ‘When the Government talks the economy down and does not outline solutions but says tax will rise it should be no surprise confidence dips.’

Meanwhile, the Institute for Fiscal Studies, a leading think-tank, urged caution on tax, saying in a report that Ms Reeves should seek reforms ‘minimising taxation’s harmful impacts on growth’.

Yesterday’s ONS figures showed borrowing – which makes up the shortfall between what the Government spends and what it earns in tax revenues – climbed to £13.7billion last month.

That was £3.3billion higher than in August last year. It means that borrowing for April to August stands at £64.1billion.

Consumer confidence plunging as a result of fears over the Budget on October 30 – which could see capital gains tax, inheritance tax and pensions tax relief targeted by the Chancellor

Mr El-Erian said Labour’s doom and gloom could cause an ‘economic downturn’. He said: ‘The less confident you are about the economic outlook, the less willing you are to spend’ (Stock Image)

That is £6.2billion higher than the level predicted by the Office for Budget Responsibility, Britain’s public finance watchdog, at the time of Jeremy Hunt’s Budget in March. 

Rob Wood, chief UK economist at Pantheon Macroeconomics, said: ‘Higher-than-expected borrowing raises the pressure on Chancellor Rachel Reeves to raise taxes and borrow more in the medium term to cover spending more on public services.’

But the UK still compares favourably with other advanced nations when it comes to national debt.

ONS figures published this year suggest among the G7, only Germany has lower debt levels.