Economy: Bank of England Forecasts

Lord Davies of Stamford Excerpts

Wednesday 13th May 2020 Lords Chamber

[Baroness Penn]

In setting out this week their road map for the easing of the lockdown, the Government have stated that step 3 would not take place any earlier than 4 July. We will seek to reopen some of the remaining businesses, particularly those in hospitality and leisure, by finding ways for them to do so safely. However, we acknowledge that this will be difficult for some businesses. We will continue to be guided by the science and we will target economic support based on how we progress with the phased reopening.

[Lord Davies of Stamford (Lab)]

My Lords, in the course of the Government’s efforts to mitigate the collapse of demand in the economy with their furloughing system and so forth, which I thoroughly approve of, they are accumulating a lot of debt. Before this crisis, we were fast approaching a level of public debt at 90% of GDP, which is unprecedentedly high. At the time of the collapse of Lehman Brothers 12 years ago, by comparison, we had a 60% public debt to GDP ratio, so with each crisis we are reducing our freedom of manoeuvre and our scope for absorbing shocks in the future. Against that background, do the Government have a notion of the maximum debt ratio which ought to be acceptable and which they can use as a discipline in planning the fiscal deficit in future? If so, will they say what that is?

[Baroness Penn]

The Government have set out their fiscal rules and continue to abide by them. With this pandemic, we face unprecedented economic circumstances. Our focus at the moment is on protecting health and jobs, and supporting businesses. As the OBR has made clear, the cost of inaction would be far higher.