When governments face rising debt, two familiar “common-sense” solutions appear:

1. Let inflation rise — that shrinks debt in real terms.
2. Stop borrowing altogether — just live within our means.

Both ideas sound tidy and responsible.
But neither works in a modern economy — and both would damage the UK far more than they would help.

Let’s return to our household analogy of the parent (government) and adult child (central bank) sharing a home.

---

1. Why Inflation Can’t Erase Debt Anymore

Historically, especially after WWII, inflation did help reduce the UK’s debt burden.
But that was a very different world — structurally, financially, socially.

Today, higher inflation causes more problems than it solves.

---

1.1 Inflation shrinks the IOUs… but instantly raises the cost of new ones

In the household analogy:

• The parent owes the adult child £100 in IOUs (government bonds).
• Inflation makes money worth less, so the IOUs shrink in real value.

But, in today’s world:

• The adult child responds by raising interest rates to keep household stability.
• That means all new IOUs cost far more to issue.

So the parent’s attempt to shrink old debts backfires:

Inflation saves a little on old debt but raises the cost on future debt dramatically.

Once, inflation was a pressure valve.
Now it’s a trap door.

---

1.2 Modern debt is short-term and very sensitive to interest rates

A large portion of UK government debt rolls over every 3–5 years.
That means rising inflation quickly pushes up:

• interest on new borrowing
• interest paid on variable and short-term debt
• government bond yields

The effect?

Inflation increases the debt burden long before it reduces it.

---

1.3 Inflation hits households before it helps the Treasury

Even mild inflation squeezes:

• wages
• food budgets
• rents
• mortgage payments
• pension income

By the time inflation has done measurable “work” on reducing debt, the households the government serves are already in pain.

And once inflation expectations rise, they’re painfully hard to bring back down.

---

2. Why “Just Stop Borrowing” Isn’t Possible

If inflation won’t fix the debt, what about simply refusing to borrow?

The idea sounds appealing:
“Live within our means. No more overspending.”

But again, modern economies don’t work like household austerity fantasies.

---

2.1 Government borrowing is a feature, not a flaw

Even well-run governments must borrow because:

• tax receipts fluctuate
• crises hit unpredictably
• infrastructure investments pay off over decades
• social protections require stability, not volatility

In the analogy:

The parent cannot avoid borrowing when the roof leaks, the car breaks down, or medical bills appear.

Borrowing is how households — and governments — survive uncertainty.

---

2.2 Stopping borrowing overnight would collapse public services

If the UK banned new borrowing tomorrow:

• NHS funding would crater
• councils would be insolvent
• pensions and benefits would halt
• schools would fail
• investment in infrastructure would stop

This is equivalent to saying:

“We ran out of overdraft, so no heating, no repairs, no food, no travel until further notice.”

The household falls apart before the debt ever falls.

---

2.3 Borrowing is what keeps recessions from becoming depressions

During downturns, private-sector spending falls.
Government borrowing fills the gap so:

• unemployment stays lower
• businesses stay open
• long-term damage is avoided

Without borrowing, recessions spiral.

---

2.4 It matters what we borrow for

Borrowing to invest — in transport, energy, education, healthcare, technology — makes the economy stronger and future borrowing cheaper.

Borrowing to plug gaps created by cuts or bad planning is different. But eliminating borrowing entirely would eliminate civilisation as we know it.

---

⭐ THE BOTTOM LINE

Inflation cannot erase modern debt without causing far worse damage, and stopping borrowing would collapse public services, increase long-term costs, and destabilise the entire economy.

Borrowing wisely is essential.

Relying on inflation or austerity absolutism is not.