Britain has ‘reasons to worry’ as debt surges, spending watchdog says… after Rachel Reeves tries to talk up Government’s growth mission
Britain has ‘reasons to worry’ about surging debt, the head of the UK’s spending watchdog warned yesterday – but cautioned against ‘higher and higher taxes’.
Richard Hughes, chairman of the Office for Budget Responsibility (OBR), told MPs that chancellors had been willing to see the debt pile ‘ratcheted up and up over time’.
With Britain still reeling from global crises over recent years, and amid weak economic growth and near- record taxes, tackling it will be even harder, cautioned Mr Hughes.
He said that while there was no ‘hard and fast level of debt at which governments should start to worry, if you look at the recent past you’ve seen governments get themselves into trouble at lower levels of debt than the UK has at the moment’.
That includes the Republic of Ireland, he added, which suffered a financial crisis in the 2010s at a lower level of debt than the UK currently has.
Mr Hughes said the risk of being brought down by debt depended on how exposed a country is to shocks, how quickly it can instigate reforms to deal with the problems and how easily a country can access the borrowing it needs.
‘In all three of those areas, when you look at the UK there are reasons to worry,’ he told the Treasury select committee.
Mr Hughes pointed to the ‘hard hit’ Britain had taken from the Covid pandemic, as well as the financial crisis and the energy crisis.
Richard Hughes, chairman of the Office for Budget Responsibility (OBR), said Britain has ‘reasons to worry’ about surging debt – but cautioned against ‘higher and higher taxes’
The comments undercut Chancellor Rachel Reeves’s attempt to talk up the Government’s growth mission at her annual Mansion House speech to the City on Tuesday night
He also referenced the high level of taxes – making it harder to raise more – and the growing concerns about whether investors are willing to keep financing the UK’s borrowing.
Luring in more investors will have to mean paying higher rates on bonds, adding to the cost of that borrowing, he added.
‘So I think there are reasons to be concerned about the level of UK government debt and for it to feature in decisions that are being taken,’ said Mr Hughes.
The comments undercut Chancellor Rachel Reeves’s attempt to talk up the Government’s growth mission at her annual Mansion House speech to the City on Tuesday night.
They also added to the bleak report published by the OBR last week forecasting that debt is on course to surge from its current level of around 100 per cent of gross domestic product (GDP) to 270 per cent over coming decades.
The watchdog warned that Britain is effectively living beyond its means and simply ‘cannot afford the array of promises that it has made to the public’.
Meanwhile, the new head of the Institute of Fiscal Studies, a respected economic think-tank, said the Chancellor was ‘limping’ from one fiscal event to another.
It comes after recent economic figures showed GDP shrank in May for the second month in a row.
GDP was down 0.1 per cent in May, following a 0.3 per cent drop in April
Mr Hughes added: ‘There hasn’t been a determined effort to reduce the level of debt over time.
‘There has been, in practice, a de facto willingness to allow its level to get ratcheted up and up over time and then commit to getting it to fall on a future date.’
Asked about efforts to boost economic growth, Mr Hughes conceded that funding investment in areas such as research and development could help – but that using public money to do so could backfire.
‘Higher and higher levels of tax are also not good for growth,’ he said.
Without stronger growth, the level of debt as a percentage of GDP will inevitably continue to surge, the OBR pointed out.
David Miles, another member of the watchdog appearing before MPs, said: ‘If nothing changed, it wouldn’t be right to assume that debt just stayed at 100 per cent of GDP, it would indeed be rising over time… ultimately probably in a way that would be unsustainable.’
