Should the UK government cut spending in order to reduce national debt?

Chloe Po

Over the past 24 years (1997/98 to 2020/21), UK national debt has increased by six times from 349.9 billion pounds to 2.1 trillion pounds.  With such a significant increase in national debt, the financial position of the UK government cannot be claimed as healthy and the government has to find ways to reduce it.
As the national debt grows bigger, together with the increase in interest rate, the government has to pay a higher amount of interest on it. This results in an increasing proportion of government tax revenue being spent on paying the national debt and the relevant debt interest.  As such, the UK government’s ability to invest and spend in other areas such as education, medical service and defence in the future will decrease.  Therefore, the government needs to cut its government spending in order to reduce the national debt to provide the country with the ability to invest or flexibility to respond to crises in the future.

Some may argue that the government can use other policies such as increasing the money supply to reduce the national debt so that the living quality or regulation of the country will not be affected.  When the government decides to increase the money supply to reduce national debt, it means that the government does not have enough reserves to repay it, hence they simply print more money to do so. In this case, investors from other countries would lose their confidence in the UK economy and would reduce their holdings of the pound, exchanging it for other countries’ currencies to avoid exchange loss, which would cause a fall in the exchange rate of the pound.  With such a decrease in the pound's exchange rate, an increase in the cost of imports is likely to occur, thus creating inflation in the UK economy.

On the other hand, others may argue that the government should not cut government spending to lower national debt due to the following reasons: If government spending reduces, it will decrease the aggregate demand of the country [according to the formula AD= C+G+I+(X-M)] and affect many citizens’ quality of life. With less government spending, projects like renewing or maintenance of roads might be cancelled.  The number of these projects which provide job opportunities will decrease, so the unemployment rate will increase.  With the increase in unemployment, the number of working people decreases, and they will have less income and will spend less, resulting in a decrease in consumption in the economy.  As consumption falls, suppliers’ profitability will be affected.  Suppliers looking to maintain their profits would either cut some of their workers, which would increase the unemployment rate; or increase their product price, which would result in inflation.

Moreover, when the government has to cut spending, it may need to reduce its budget for areas like medical services - e.g., the NHS.  However, currently, the UK is facing a serious increase in the ageing population, therefore demand for medical services is also increasing.  If the budget for these medical services gets cut, the NHS will be less able to provide services for those who are in need, especially the elderly. Additionally, people who cannot afford to receive treatment in a private hospital now may not receive proper treatment.  In this case, the public's quality of life is reduced with the government cutting their spending.
Instead, they may suggest increasing the tax rate of high-income groups, who can afford to pay more tax.  Government policy cannot increase the income tax for the entire workforce, as some grass-root level earners on the minimum wage cannot maintain their basic life if they have to pay a higher amount of tax.  Therefore, the policy could focus on increasing the tax rate proportion of those high-income groups so as to increase the government tax revenue and capability to reduce the national debt.

In conclusion, the question of whether the government should cut public spending in order to reduce the national debt depends on the market and consumers’ expectations.