March 2025 marked the end of the first fiscal quarter of the 21st century, comprising the 25 financial years from 2000/01 to 2024/25. Our chart this week takes a look at how it compares with the previous four quarters in the 20th century.

Our chart starts with the first quarter of the 20th century that started on 1 April 1900 and ended on 31 March 1925 – the comparative period a century ago. Public sector net debt increased by £7bn (from just under £1bn to just under £8bn) and by 142 percentage points of GDP (from 33% of GDP to 175% of GDP) over the 25 years. 

As the chart illustrates, the increase in the net debt to GDP ratio reflected an increase in the numerator from borrowing of 184% of GDP, partially offset by 42% of GDP from the ‘inflating away’ effect of economic growth and inflation on the denominator. 

Almost all of the borrowing in the first quarter a century ago was incurred to finance the First World War, while the severe contraction in the UK economy after the war (partly because of the global ‘Spanish flu’ influenza pandemic) meant that the erosion of net debt as a share of GDP from economic growth and inflation was just 42% instead of the 84% it had been in the first 20 years of the century.

Around £15bn of the £18bn or 210% of GDP that was borrowed during the second quarter of the 20th century was during the Second World War years from 1940/41 to 1945/46. This was substantially offset by strong economic growth during the quarter (especially in the five years up to 1949/50 as the nation emerged from the war) that saw debt ‘inflated away’ by 182% of GDP. The consequence was an increase of just 28 percentage points in net debt as a share of GDP to 203% of GDP on 31 March 1950.

The third quarter of the 20th century saw the government borrow a further £26bn, resulting in net debt doubling to £52bn on 31 March 1975. However, net debt fell as a share of GDP by 155 percentage points to 48% of GDP, with borrowing of 48% of GDP being more than offset by a 203-percentage point reduction from economic growth and inflation increasing the denominator in the net debt/GDP ratio.

The last quarter of the 20th century saw a further reduction in the ratio of net debt to GDP of 16 percentage points, from higher borrowing of £301bn or 72% of GDP being offset by an 88% of GDP inflating away effect of economic growth and inflation. Net debt reached £353bn on 31 March 2000, equivalent to 32% of GDP.

The first quarter of the 21st century, based on provisional numbers for the year ended 31 March 2025, saw net debt/GDP increase by 64 percentage points, with £2,461bn or 130% of GDP borrowed over the past 25 years, taking net debt to £2,814bn and net debt/GDP to 96% of GDP after reflecting a 66% of GDP inflating away effect from economic growth and inflation.

One positive from these comparisons is that at least the latest quarter was not as bad as the comparative quarter a century ago. However, for a period of peacetime we still managed to borrow approaching ‘warlike’ sums to fund the costs of a financial crisis, a pandemic (although the comparative period had one of those too) and an energy crisis that all combined to increase public sector net debt massively. Meanwhile, lower levels of economic growth than in the second half of the 20th century mean that we have not inflated debt away as quickly as we might hope.

As we start the second quarter of the 21st century, the hope is that we can avoid wars, boost economic growth, control spending to keep borrowing under control and – at the same time – increase the speed at which debt is inflated away. Doing so will be essential if we are to move the public finances back onto a sustainable path.