<P> By the mid-1920s, interest on government debt was absorbing 44% of all government expenditure, comfortably exceeding spending on defence until 1937 when, as war clouds drew near, re-armament began to get underway in earnest . </P> <P> During World War II the Government was again forced to borrow heavily in order to finance war with the Axis powers . By the end of the conflict Britain's debt exceeded 200 percent of GDP, as it had done after the end of the Napoleonic Wars . As during World War I, the US again provided the major source of funds, this time via low - interest loans and also through the Lend Lease Act . Even at the end of the war Britain needed American financial assistance, and in 1945 Britain took a loan for $586 million (about £ 145 million at 1945 exchange rates), and in addition a further $3.7 billion line of credit (about £ 930m at 1945 exchange rates). The debt was to be paid off in 50 annual repayments commencing in 1950 . Some of these loans were only paid off in the early 21st century . On 31 December 2006, Britain made a final payment of about $83 m (£ 45.5 m) and thereby discharged the last of its war loans from the US . </P> <P> By the end of World War II Britain had amassed an immense debt of £ 21 billion . Much of this was held in foreign hands, with around £ 3.4 billion being owed overseas (mainly to creditors in the United States), a sum which represented around one third of annual GDP . </P> <P> After the war the debt gradually fell as a proportion of GDP, but in 1976 the British Government led by James Callaghan faced a Sterling crisis during which the value of the pound tumbled and the government found it difficult to raise sufficient funds to maintain its spending commitments . The Prime Minister was forced to apply to the International Monetary Fund for a £ 2.3 billion rescue package; the largest - ever call on IMF resources up to that point . In November 1976 the IMF announced its conditions for a loan, including deep cuts in public expenditure, in effect taking control of UK domestic policy . The crisis was depicted by the right - wing press as a national humiliation, with Chancellor Denis Healey being forced to go "cap in hand" to the IMF . </P>

What effect did the seven year's war have on england's national debt