Each month the Scattered Clouds blog takes a look at the wonderful world of tourism through a data and evidence-led lens, all in pursuit of transforming tourism sector data into insight of course!

Should the tourism sector be concerned about our national debt? - October 2025

In my assessment the answer is yes. However, to avoid this being an extraordinarily short blog I will elaborate.

We ought to start with a bit of a history lesson. Britain has had a national debt since the late 1600s and relative to the size of the economy it was way higher than is the case today at the end of the Napoleonic Wars, and again after both World War 1 and World War 2. Our national debt relative to GDP is also lower than is the case in a number of the world’s other leading economies. On that basis perhaps there is nothing at all to worry about.

For much of the two decades prior to the global financial crisis our national debt stood at about 30-40% of GDP, but it then rocketed as the government had to bail out the banks, reaching more than 75% of GDP by the onset of 2012. Things then stabilised at this new higher level until the pandemic, when out of the blue the government found itself paying a slice of most folks’ wages and rummaging around down the back of the sofa to find enough money to procure vaccines and, not always successfully, personal protective equipment.

Our national debt peaked at 98% of GDP in autumn 2021 but despite the pandemic having ended and the economy having reopened it has remained at an elevated level, being 96.4% of GDP at the end of August this year.

It is only possible to have a debt if there is an appetite to borrow by one party and a willingness to lend by another. The lender will naturally want to make a return on the funds they have parted with, hence the concept of a loan having a rate of interest that the borrower is expected to pay.

In the twelve months to August the net interest payable on our national debt stood at a whisker below £96 billion, with the Office for Budget Responsibility forecasting that in the current fiscal year we will pay the handsome sum of £111 billion in debt interest. Is that a big number I hear you ask, well, perhaps I don’t because hopefully it is blindingly obvious that it is, but it is nonetheless worth providing some context. £111 billion is more than half the annual NHS budget and roughly double the amount we currently spend on defence.

It's important to realise that this isn’t the amount of debt we are repaying, it is simply the interest we are paying on our national debt.

One of the trends that has been highlighted in recent months is for the rate of interest bond markets are demanding on their loans to governments across the western world to edge higher. It has also been observed that the rate charged on loans to the British government have edged up more quickly than is the case for most other countries.

During August the average yield (the term used to describe the rate of interest on these types of loan) for UK government 30-year gilts (the term used to describe loans to the UK government) stood at 5.48%, this being one percentage point higher than had been the case twelve months earlier.

It is true to say that most gilts are for periods shorter than 30 years and the yields applied to these are lower than is the case for the 30-year gilts, but what is also true is that the yield demanded by bond markets on these shorter-term loans has also risen in the past year.

If the size of your debt is tiny then a percentage point increase in the rate of interest might be nothing more than a minor inconvenience, but the government isn’t in the market for a loan of a couple of hundred quid or so.

A key reason why yields might trend upwards is if those lending the money are a bit twitchy about your ability to pay back the loan. Some economic historians, and journalists who aren’t necessarily all that well versed in economic history, have made reference to the fact that next year will be the fiftieth anniversary of the UK government having to seek a bailout from the International Monetary Fund.

History repeating itself is not on the cards, but the lessons from history help explain why the government has been so adamant about its so-called fiscal rules. Perhaps the most important of these is that day-to-day costs are met by revenues by 2029/30, although from 2026/27 this rule applies to the third year of the forecast period, and as such is a year that is never reached, and the Chancellor has also given herself a little added wiggle (or wriggle) room in as much as that the current budget surplus or deficit can sit within 0.5% of GDP without breaking the fiscal rule.

The OBR is busily crunching lots of numbers ahead of the Autumn Budget at the end of November, and most analysts expect the OBR will forecast that unless fiscal and/or spending policy adjustments are on the horizon the government will be at risk of breaking this rule.

Many reasons sit behind this, including the increased bill for welfare payments, but also the commitment to increase defence spending to 2.5% of GDP by 2027 with an aspiration for it to reach 3% of GDP during the next parliament.

However, a major drain on day-to-day spending is the state pension. While it is true that the age at which someone becomes entitled to their pension is heading up to 67 over the coming years, latest ONS projections suggest the number of state pension age citizens will be 1.7 million higher in 2032 than it was in 2022, reaching 13.7 million.

The triple lock has undoubtedly helped improve the living standards of many of the most elderly and financially vulnerable in society, but the cost of keeping this promise beyond the current parliament may prove unaffordable.

Nearly one thousand words into the blog and I’ve not written about tourism yet, sorry! However, all of the above hopefully conveys that the public finances are not in the best of health and there are ring-fenced demands over the next few years that will see increasing amounts (in real not just nominal terms) being spent on health, defence and the state pension.

Tourism relies on government (whether national, devolved or local) spending in very many ways. There is the obvious stuff such as the funding of tourist boards to promote / manage the destination, money to maintain our heritage sites and cultural institutions, and programmes to help support workforce training and development. But there is all the stuff in the background too, for example having efficient and border and visa formalities, public subsidy to the rail industry ensuring inbound and domestic visitors without access to a car can explore the country, road maintenance for visitors opting to drive, and the day-to-day management, upkeep and in some cases regeneration, of the public realm.

Britain does not have the strongest value-for-money offer, but a hefty proportion of our inbound visitors, and lots of domestic visitors too, enjoy the fact that our national museums are free to enter. These museums and galleries might offer free admission but each has substantial running costs that even allowing for chargeable special exhibitions and revenue generated courtesy of retail and catering has a cost to the public purse, with DCMS grant-in-aid to the 15 national museums and galleries it sponsors amounting to £452 million in 2023/24 (roughly what we have to pay in interest on our national debt every 36 hours).

The competition for public funding has always been fierce; there’s no trade association or economic sector that doesn’t spend time and effort building a case for why it is special and should not be made to pay higher taxes or see its funding eroded, but while the clamour for favourable treatment grows ever louder the ability to appease such demands gets ever more tricky.

Earlier we touched on the fiscal rules, and while bond markets may accept some gentle tweaking it’s unlikely they would react well to their wholesale dismantlement (remember the infamous “mini-budget”). Government financial accounts are a function of the amount of revenue accrued courtesy of taxation and the levying of other duties or charges and the amount spent on delivering services to and on behalf of the public. If the former is less than the latter then borrowing (at a cost) can accommodate the difference, or to use the right parlance, deficit. But if borrowing is getting ever more pricy then thought needs to be given to cutting spending or raising revenue in order to bring the account closer to equilibrium.

While some may argue it was politically expedient for parties of many hues to promise not to increase VAT, income tax or National Insurance on employees ahead of the last election, between them these three sources account for over half of all the money raised by government each year.

At a time when the song title “Money’s Too Tight (To Mention)” feels apposite it is at best odd that the most effective ways of raising significant additional revenue have all been ruled out.

Any part of the tourism ecosystem that sees its public funding go up in real terms in the next few years is likely to be the exception rather than the rule. For many simply ensuring that funding stays still once inflation is allowed for will be an achievement worthy of celebrating.

Demonstrating how public investment in tourism can bring about economic growth is certainly vital, but so too in the future will be the ability to demonstrate that investment delivers a positive return on investment for the public finances, thereby helping to keep the national debt manageable.