Forget Spain - Britain's debts look pretty painful too

The markets are closing in on Spain. But we shouldn't get too comfortable - our debt burden is looking increasingly intolerable.

The markets seem to have it in for Spain today. Indeed, the prospect of the euro splintering entirely is increasingly being discussed in the mainstream press.

But Britain shouldn't get too comfortable, reckons Tim Price of PFP Wealth Management. In his Price Report newsletter, he notes that "The UK's total debts sum to over 450% of GDP. At this level, some form of debt restructuring is almost inevitable. There are four possible ways out of the mire:

Fast economic growth, which looks hugely implausible now.

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Belt-tightening, which so far has been the preferred choice of our coalition government.

Currency devaluation, which is arguably already happening on the sly.

Explicit default, such as that of Russia in 1998 or Argentina between 2002 and 2008.

"As Ireland has found to its cost, austerity in the midst of a painful debt deflation may be a lost cause. Crushing the last fragments of life out of a sickly economy is not likely to be the best method for boosting government revenues or of repaying debts. But once you start to factor in unfunded liabilities (not least, pensions) the debt burden looks even more intolerable:


"As this chart shows, pension liabilities make a bad problem doubly worse. Factor in the off-balance-sheet liabilities of the UK and US government, and the question becomes: how long before some form of default is inevitable?"

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.