This image shows the UK’s Current Account from 1950 to 2022, divided into two equal periods. The blue line represents the halfway point, in 1986.

The Current Account is one side of the Balance of Payments. The balance of payments comprises the UK’s “bank accounts” with the rest of the world. The current account, like a personal current account, is where regular income arrives and payments are made. Most of these relate to imports and exports, but it also includes dividends and interest coming in from UK investments abroad and going out from foreign investments in the UK.

The single black box above the blue line in the image shows that the Current Account was “in the black” (just) taking the period from 1950 to 1985 as a whole. The boxes below the line show the extent to which the UK has been “in the red'' for the period since. Since 1986 the UK has spent nearly £2 trillion more (adjusted for inflation) than it has earned on cross border trade and investment - a figure that continues to grow. That’s well over two per cent, on average, of national output, measured in money terms.

That £2 trillion has to come from somewhere, which is the other side of the Balance of Payments. This is called the Capital and Financial Accounts - a bit like a person’s savings account, except that in the UK’s case it only contains other people’s money. This flows in and out by way of loans and capital investments. These may be short term (such as buying and selling shares or borrowing and lending money) or longer term, such as buying property or businesses. The more the UK overspends from the Current Account, the more of other people’s money it has to attract into the Capital and Financial Accounts.

The time when the Current Account turned definitively negative is significant. 1986 was the height of the Thatcher government’s push for financial deregulation and the privatisation of social assets. One of the effects of this was to expose the UK economy to the full force of the global marketplace, from which it turned out there was nowhere to hide.

As capital flowed freely in search of the highest returns, the UK’s under-invested manufacturing base shrank and imports soared. It soon became a matter of urgency to find things to sell to foreigners to offset the rising trade debts. In privatising the gas and electricity companies, the water boards, the railways, council housing, etc, the government was creating asset liquidity - turning the nation’s essential infrastructure into financial instruments such as company shares that could easily be bought and sold.

For decades, successive UK governments have boasted about inward foreign investment, pretending that the willingness of foreigners to invest their money in the UK is an indicator of success rather than chronic indebtedness. That net £2 trillion worth of assets the UK has sold to foreigners to cover its debts includes everything from high-end flats in London to high street brands, football clubs and nuclear power stations.

The loss of these assets is serious enough, but it also comes with a huge catch. When foreigners invest in the UK they expect a return. This could be rent, interest, company dividends, or asset appreciation. In these ways they take money out again through the Current Account, which causes the UK’s debts to increase still further. This sets up a vicious cycle, with more assets having to be disposed of to pay the returns due on assets previously sold.

Data sources:

A spreadsheet showing sources and calculations for this image can be found here.