During the First World War, the UK national debt increased from 25 percent of GDP in 1914 to 135 percent in 1919. In an attempt to pay this off, the Treasury adopted a restrictive fiscal policy which resulted in a stagnating economy for much of the 1920s so that the the national debt to GDP ratio increased. In 1931, in a deficit reducing attempt to reduce the interest charge on the national debt, the government cut the rate of interest to 2 percent. This unwittingly triggered a house building boom and growth of new consumer goods industries in the South and East of Britain. Furthermore, Britain withdrew from the Gold Standard leading to a devaluation of sterling and introduced a tariff on competitive imports. The cumulative impact of the resort to this in “Plan B” the early 1930s was a significant boost to economic growth and a reduction in the national debt from 177 percent of GDP in 1933 to 110 percent by 1940. The Second World War increased the national debt to 216 percent of GDP in 1945 and 238 percent by 1947. From 1948 to 1973, however, strong economic growth contributed to a reduction in the national debt to 50 percent of GDP, as the fiscal effects of GDP growth and full employment exceeded the increase in government spending associated with the extension of role for the State, with the creation of the NHS and the welfare state. During the 1970s and 1980s, there was a retreat from the welfare state, extensive privatisation and the replacement of Keynesianism with Monetarism. Stagflation in the 1970s and major recessions in the early 1980s and early 1990s caused the rate of debt reduction to slow. From 1992, however, economic recovery and a determined effort to reduce public expenditure contributed to a reduction in the national debt to 26 percent of GDP in 1991. But by 2006, it had once again risen to 35 percent of GDP; and by 2010, to 55 percent of GDP, well above the level it had been during the mid 1970s. Treasury forecasts are that it will rise to 70 percent by 2014.
During the First World War, the UK national debt increased from 25 percent of GDP in 1914 to 135 percent in 1919. In an attempt to pay this off, the Treasury adopted a restrictive fiscal policy which resulted in a stagnating economy for much of the 1920s so that the the national debt to GDP ratio increased. In 1931, in a deficit reducing attempt to reduce the interest charge on the national debt, the government cut the rate of interest to 2 percent. This unwittingly triggered a house building boom and growth of new consumer goods industries in the South and East of Britain. Furthermore, Britain withdrew from the Gold Standard leading to a devaluation of sterling and introduced a tariff on competitive imports. The cumulative impact of the resort to this “Plan B” in the early 1930s was a significant boost to economic growth and a reduction in the national debt from 177 percent of GDP in 1933 to 110 percent by 1940. The Second World War increased the national debt to 216 percent of GDP in 1945 and 238 percent by 1947. From 1948 to 1973, however, strong economic growth contributed to a reduction in the national debt to 50 percent of GDP, as the fiscal effects of GDP growth and full employment exceeded the increase in government spending associated with the extension of role for the State, with the creation of the NHS and the welfare state. During the 1970s and 1980s, there was a retreat from the welfare state, extensive privatisation and the replacement of Keynesianism with Monetarism. Stagflation in the 1970s and major recessions in the early 1980s and early 1990s caused the rate of debt reduction to slow. From 1992, however, economic recovery and a determined effort to reduce public expenditure contributed to a reduction in the national debt to 26 percent of GDP in 1991. But by 2006, it had once again risen to 35 percent of GDP; and by 2010, to 55 percent of GDP, well above the level it had been during the mid 1970s. Treasury forecasts are that it will rise to 70 percent by 2014.