The UK model of public debt management

Mariia Mygal

Financial, humanitarian, and military support from international partners significantly helps Ukraine to resist the aggression of the russian federation and to defend its independence and sovereignty. 

The United Kingdom is one of the largest donors of financial assistance to Ukraine. As of the end of November, during the full-scale invasion, our country received about $1 billion in funding from the United Kingdom. In addition, the state is a donor to the Energy Support Fund for Ukraine and actively supports the policy of imposing sanctions against russia. 

Despite the scale of support provided by the UK to Ukraine, the country has a fairly high level of public debt. 

How is debt management carried out in the UK? 

The main goal of public debt management in the UK is to control the growth of public spending, so the main emphasis is on the efficiency of using budget funds. 

Decisions on debt management policy are made in advance to achieve the set goals. Each year, the government evaluates the costs and risks associated with different possible bond issuance models, taking into account market conditions and demand.

The overall responsibility for achieving the debt management objective lies with the Treasury. To meet the debt borrowing needs of the Government, the institution acts through its agents:

  • The Debt Management Agency (DMO) is responsible only for debt management and repayment;
  • National Savings and Investment Bank (NSI) – responsible for securities issued that have very low yields but offer significant potential returns;
  • The Bank of England – manages the amount of debt in pounds sterling and the portfolio of exchange operations to cover foreign exchange reserves.

A special feature of the UK’s public debt management model is the issuance of such bonds as gilts. They are called gilts because the original certificates issued by the British government had gilded edges. 

Gilts are divided into

  • regular (short, medium, long);
  • inflation-indexed (aimed at protecting the purchasing power of bonds by linking interest and principal payments to the price index)
  • corporate (issued by companies seeking to raise capital, usually to ensure entry into a new market or development of a particular area of the company). 

Current state of the UK public debt

In July 2020, the UK’s public debt exceeded £2 trillion (over $2.6 trillion) for the first time due to a significant increase in government spending caused by the coronavirus epidemic. At the same time, the country’s state budget deficit in the same month amounted to £26.7 billion, or $35 billion.

In order to overcome the economic problems caused by the pandemic, Boris Johnson’s government has set a course to increase the tax burden to more than 36% of the total national income of Britain. This increase was planned to be implemented by 2026, which would have been the highest level of taxation in Britain since the 1940s. Among other things, the plan envisaged an increase in the income tax to 25% starting in 2024, which would be the first such decision in almost half a century.

Therefore, this year’s prime ministerial candidates have been armed with promises to reduce people’s taxes. However, the British economy would then face a growing debt burden if the budget deficit from tax cuts were covered by borrowing. 

Recently, the British government announced its decision to raise taxes to overcome the financial crisis and fill the budget deficit. This step is necessary as the country is experiencing a general decline in economic activity and inflation may reach a record high in the last 40 years. The current British Prime Minister, Rishi Sunak, said in his election campaign that he would reduce the tax burden starting in 2024 if he tames inflation.


The UK has an agency model of public debt management.

The UK is characterized by strict control over budget expenditures, so the main emphasis is on the efficiency of using funds. 

A special feature of the public debt management model is the issuance of such types of bonds as gilts (ordinary, inflation-indexed, and corporate).

The UK economy has been affected by the Covid-19 pandemic. In July 2020, the public debt reached a record level and exceeded £2 trillion. 

In order to overcome the financial crisis and fill the budget deficit, public debt is managed, in particular, through the taxation system. The government has decided to raise taxes for all Britons. It remains to be seen what effect this will have on the British economy. 

What is the situation with taxation in Ukraine? 

Recently, the so-called “10-10-10” tax reform has been discussed in our country. It will provide for a 10% reduction in the tax on profits, personal income and value added. 

At the same time, it is planned to double the military tax rate to 3% during the war. In addition, the unified social contribution (currently 22% of the employee’s payroll) will be abolished, but retained for individual entrepreneurs who are subject to the single tax system.

Whether the tax reform will be adopted in Ukraine is a matter of time and the outcome of the discussion. 

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