There is a debate over on Liberal Conspiracy on financial matters. Sunder Katwala kicks it off by arguing that though the LibLabCon consensus is that public expenditure must be cut, the public themselves are not keen on cuts, and maybe we are not actually staring national bankruptcy in the face, and we should not get hysterical over the state of public finances.
My answer - I wouldn't start from here, but given the situation, we should plan to bring debt down, in a controlled way, over the medium or long term.
Debt financing is wrong. It is unethical, committing future generations to pay for our present demands. Everyone has been doing it though: This list of countries by National Debt shows the UK about midway on the OECD list, and midway/worse on the general list. (adjust the list by clicking the box at the top).
In terms of external (foreign) debt, we do far worse, being fifth from bottom of the list in terms of percentage of GDP. This means that we are more in hock to foreign banks.
The interesting thing is that the vast majority owed by all countries is not to one another, but by countries to private banks.
The root of all of this debt lies in the fact that money is created by lending at interest. The money supply is doubling every 10 years or so. Doubling growth is exponential, and therefore unsustainable. The solution to the debt problem is to issue at least a fraction of the money (I would suggest 50%, varying with circumstances) on the authority of institutions acting on behalf of the ultimate source of power (i.e. we the people). Such issues should be only for investment into physical processes designed to benefit the nation in the long term, the principle candidate in 2010 being the Green New Deal.
This suggestion is certain to produce hysterical comments about hyperinflation, but hyperinflation is caused by ill-considered short term printing of money, usually in conditions of civil disruption or civil war. There is no intrinsic reason that private corporations should have a monopoly on the creation of money.