Fiscal Outlook

Baroness Morrissey Excerpts

Thursday 10th September 2026 Lords Chamber

[Baroness Morrissey (Con)]

My Lords, it is an honour to follow many interesting and thoughtful contributions to this timely debate. I thank the noble Lord, Lord Bridges of Headley.

I bring a distinct perspective as a former bond fund manager. For 15 years, I managed both UK gilt and global government bond funds totalling several billion pounds. As set out in my register of interests, I continue to have several active investment roles. I chair Eton College’s endowment fund, I serve on the board of a US investment company and I chair a US-listed insurance company whose balance sheet is invested mainly in government debt. All these roles require me to keep my finger firmly on the pulse of markets and, I am afraid, make me all too aware of our perilous position today.

Of course, many Governments have seen a sharp jump in their debt levels in the past two decades thanks to the triple whammy of the global financial crisis, Covid policies and the inflationary pressures of the Russia-Ukraine and Middle East wars. Also, nearly $500 billion of debt has been issued year to date by tech companies in the US and that has recently increased the pressure on US Treasury yields, which act as the reference point for all the bond markets of developed Governments.

There is no safety in numbers, as far as bond investors are concerned. Moreover, as the noble Lord, Lord Bridges, mentioned at the start, the UK gilt market has specific structural features that make us more vulnerable to a borrowing crisis in a high inflation, low-growth world.

Today, just as an example, 10-year gilts yield a full percentage point above Italian 10-year bonds. That is a risk premium demanded by investors for the extra risk they see in investing in our government debt, compared to Italian government bonds. To give some historical perspective on that, in January 2012, Italy had to pay its bond investors five percentage points more interest every year than the UK.

Why is the UK seen as a particularly deteriorating credit risk? The bond investors see us as running out of options to escape a fiscal doom loop because of the policy mistakes we have made over several Governments and the idiosyncratic features of the gilt market. I will give a couple of specifics on that to show the order of magnitude. First, a quarter of our debt mountain is index-linked. That is a far greater proportion than other countries. In France, for example, it is just 10%. In a persistently high inflation environment, like today, the UK suffers much more than other nations in terms of the incremental burden financing our national debt.

Secondly, the average maturity of British debt is much longer than other G7 countries: it is around 13.5 years, compared with eight years for France and less than six years for the US. This is a big problem because of the changing nature of UK pension funds, which is resulting in dwindling domestic demand for long-dated gilts. Defined benefit schemes required pension funds to match their liabilities with assets, so they had to buy long-dated gilts, particularly long-dated index-linked gilts, which offer the best match for inflation-linked, final-salary pensions.

However, in today’s increasingly defined contributions pensions world, that no longer applies. Of course, the Debt Management Office is aware of that, and it is going to experiment later this month with what it is calling a switch auction. It is just an operational test; no gilts will actually be switched. It is trying to see if it can reprofile the maturity of outstanding debt. The problem is that holders of long gilts will be crystallising their losses if they swap them for shorter bonds, so that may not fly.

One of the most active sellers of long gilts today is the Bank of England, as it tries to reverse the long period of quantitative easing after the global financial crisis. The bank will announce its plans for the so-called quantitative tightening in a weeks’ time. So, next Thursday is another worrying date for gilt market participants.

Bond investors are acutely aware that there are very limited ways for a country to escape spiralling interest payments on its national debt. My noble friend Lady Noakes mentioned three ways; I will add a fourth. In many cases, a country may be able to try inflating its way out of the problem, by devaluing the face value of the outstanding debt. However, as I mentioned, that is not an option here, because we have the huge preponderance of indexing bonds. The other three are growing our way out; raising taxes, which has been discussed a lot; and cutting public spending—or, of course, some combination of the above.

I will add my two pennies’ worth to the options. We would all love to see robust economic growth. As we all know, over the past two years, the Labour Government have often described this as their priority, but the fact is that their policy actions have undermined and not supported business and growth. Others have mentioned many examples: the increased national insurance burden on employers is the most obvious. As we have heard, economic growth depends on wealth creation, which goes hand in hand with internationally competitive levels of taxation.

My noble friend Lord Elliott of Mickle Fell just mentioned the departure of Chris Rokos from these shores. As well as contributing £333 million to the Treasury coffers last year, he has also been an incredibly generous benefactor to Cambridge University and Eton College. All of us are left poorer by his departure, and I remind those who have the ear of the Treasury that 100% of nothing is obviously nothing.

We are well past the optimal point of taxation rates that yield the most revenue. There is just one option to curb government spending. The noble Lord, Lord Davies of Brixton, talked about political choices, but sometimes we do not have the choice. Sometimes, we do not have that luxury. Today, the warning lights are flashing. There is a headline in today’s City AM:

“Could Britain collapse under the weight of Labour spending?”


As a nation, we are in hock to the bond markets. When I am personally in significant debt to a bank, it is the bank that sets the terms and can call in the loan, raise the interest rate and refuse to lend me more. Unhappy gilt market participants are like banks and taxpayers, and they will vote with their feet. They will not accept vague reassurances about fostering growth or taking responsibilities of a fiscal nature seriously. They need and demand specific, concrete actions.

To avert a fiscal crisis, Chancellor Healey must not raise spending and taxes in next month’s Budget. Instead, he must set out quantified and credible plans to cut spending. That would be the first but critical step towards restoring government finances, so that we can start regaining control of the national debt, escape the fiscal doom loop and start to focus on our economic future.

European Union (Future Relationship) Bill

Baroness Morrissey Excerpts

3rd reading & 2nd reading & Committee negatived & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords & Committee negatived (Hansard) & Committee negatived (Hansard): House of Lords
Wednesday 30th December 2020 Lords Chamber

[Baroness Morrissey (Con) [V]]

My Lords, it is an honour to speak on this historic occasion. I add my congratulations to those already expressed to the Prime Minister, the noble Lord, Lord Frost, and their hard-working team, for reaching an agreement that means Great Britain will once again be a sovereign power and still be able to trade goods with the EU free of tariffs and quotas. That itself is an outcome that many said could not be achieved, and it should be greatly celebrated.

Of course, as others have said, the agreement is not perfect. It could not be perfect. It is the result of negotiations involving compromises, and some disappointments, especially regarding the border in the Irish Sea. As others have said, there is much work to be done to protect Britain’s interests, and there are gaps and uncertainties. The absence of an agreement on financial services has been noted but, as a practitioner, I beg to differ from the pessimism of the noble Baroness, Lady Kramer. This sector prides itself on reinvention and innovation. The City has always had a global perspective and is already eyeing up the potential positives in the event—should it occur—of regulatory divergence.

Notwithstanding any flaws, the Bill before us is a watershed, because it finally enables Britain to become a truly independent nation, four and a half years after the referendum, eight years after the then Prime Minister David Cameron said that the British people must “have their say” on EU membership, and after decades of rancorous argument in this country and in Parliament over the issue. Now, after a year in which our freedoms and economy have been ravaged by the pandemic, when we have the opportunity afforded by the deal to start a new relationship with the EU that reflects the democratic wish of the British people, it is surely time to put our destructive Brexit divisions behind us, as my noble friends Lord Framlingham and Lady Meyer urged.

Until now, leaving the EU seems to have been managed more as a damage limitation exercise, to do as little harm as possible to existing trade. That has been understandable but, as we look to the future, it is vital that we encourage and support the British tendency to entrepreneurship and innovation. As my noble friends Lord Lang and Lord Naseby suggested, it is time to focus somewhat less on the EU and rather more on the rest of the world for multiple vibrant and lucrative trading relationships. A new era for Britain starts on 1 January 2021 and we in this House have a specific responsibility to help to seize the opportunity through our various areas of expertise, including those with business and finance backgrounds. I will be supporting the Bill so that Britain can move forward and focus on creating jobs, on helping people get their freedoms back and on being a force for good in the world.