Changing Society Briefing 3: Rising government debt and its impact on charities.
- Joe Saxton
- Mar 30
- 4 min read
Introduction
This is the third in the Heyheyjoe briefing series looking at external social, economic, and demographic changes and their impact on charities and non-profit organisations. This one focuses on levels of debt in UK society and particularly government debt and the impact it will have on charities and non-profits.
Rise in levels of government debt
The government debt currently stands at around £2.7 trillion or about 96% of the size of our economy (GDP). Chart 1 below shows the level of debt in relation to the size of our economy since 1901. The boxes on the chart indicate the big events that have caused a rise in debt – the first world war, the second world war, the fiscal crisis of 2008 and the covid 19 pandemic.
For the most part it is wars that cause major increases in government debt. The long period between the second world war and the 2000s saw a decrease in levels of debt relative to the size of the economy – this is due both to a growth in the size of the economy as well as a reduction in levels of actual debt. The big problem that rising levels of debt cause is when they increase the levels of debt repayment, which is the current issue for this briefing.
Increasing levels of government debt repayment
Since the pandemic there has been a double debt whammy. The government has borrowed more due to the pandemic and interest rates have increased. Chart 2 shows the absolute amount of debt repayment from 2010. From 2010 to 2020 the debt repayment was about £40 billion a year. After the pandemic, with the cost of the furlough scheme, business support, and a reduction in tax revenue, debt jumped and the estimated annual cost for debt repayment is currently £100-£120 billion. That is an extra £60-£80 billion each year or about the total size of the schools budget (https://explore-education-statistics.service.gov.uk/find-statistics/school-funding-statistics), that the government needs to find each year. This is done either by raising more tax – but Labour have ruled out increases in VAT, personal income tax or employee national insurance. Or Government spending less, which is equally problematic.
Chart 2: levels of debt repayment since 2010
Changes in levels of household and personal debt
Is the rise in government debt a more general debt crisis? What about the business and household debt? Chart 3 shows the level of household debt as a percentage of household income. The level of household debt has been in decline since 2007. This is interesting because most household debt is to buy houses, so despite the increase in levels of house prices, this is not causing a household debt crisis.
Similarly there is little evidence of a crisis in business debt. In 2013 business debt was around £435 billion and by 2024 it was £488 billion, an increase of around 12% in total debt (source: https://www.money.co.uk/business/business-loans-statistics) over 11 years.
Chart 3: Household debt as a percentage of disposable income
The implications for charities
What do all these changes mean for charities? Firstly for the impact on government funding, and second for the impact on demand for services.
Less government funding
The impact of this increase in government debt is stark. There will be less funds to spend on almost anything but the highest of government priorities. Indeed we have already seen that the government is cutting overseas aid to pay for defence spending and trying to reduce welfare benefit payments. This tight financial environment means that there will be less and less funds available for charities. This is only going to exacerbate the existing decline in charity income coming from government. In 2009, 37% of charity income came from government and by 2019/20 it was 26% (source: https://www.ncvo.org.uk/news-and-insights/news-index/uk-civil-society-almanac-2024/financials/what-are-the-trends-in-income-from-government/). What the percentage will be by the end of 2025 is a depressing projection.
Rising demand for charity services
It is not just the decreasing income from government that should worry charities. It is also the likely impact on their beneficiaries – those they exist to serve. Many of the poorest in society have already been hit by the cost of living and covid and now face a reduction in government services. There are also government proposals attempting to reduce the benefits bill, and the winter fuel payments have already been cut.
Charities are already seeing an increase in demand for their services (https://www.civilsociety.co.uk/news/demand-has-risen-a-lot-over-past-year-for-most-charities-report-leaders.html) Charities are likely to go on seeing an increase in demand for their services whether it be in delivering advice, providing food banks, or supporting people who are struggling to make ends meet in other ways.
Less government headspace
Alongside the direct impact on charities of reduced funding and increased demand, is the indirect downside of this pressure on government funding: less government headspace for charities, their work, and their potential to deliver change. Cabinets ministers and the prime minister are dealing with the squeeze on finances, the war in Ukraine, the impact of a second Trump term and a stagnant economy. It’s unlikely that the government is going to have time and headspace to make the most of the potential of charities, with so much pressure from other quarters.
If charities want to deliver to their potential, then they must look inside the sector for solutions, rather than hoping government will come to their rescue. Indeed government is likely to be more part of the problem over the coming few years, than part of the solution.
Joe Saxton
March 2025
This briefing is part of a series looking at the impact of social, economic, technological, and demographic changes on charities and non-profit organizations. We have already published a briefing on the ageing population and changing numbers of single people and fertility rates. In future issues we will look at the impact of digital, the growing cult of the individual, unequal wealth distribution and falling levels of religious conviction on charities. Go to www.heyheyjoe.info for more information.
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