National Debt: It’s Time for Tough Decisions (Economic Affairs Committee Report)

Lord Burns Excerpts

Friday 25th April 2025 Lords Chamber

[Lord Burns (CB)]

My Lords, I thank the noble Lord, Lord Bridges, for his time as chair of the Economic Affairs Committee and for securing this debate. He played a crucial role in ensuring that the committee’s work was relevant, timely and newsworthy. We can see that in the reports that were published during his time as chair. He summarised very well this report, which was completed last September. It remains pertinent—even more so considering many recent developments.

As has been said, the main emphasis of the report is on the need for a fiscal framework for delivering long-term financial sustainability. However, it also addresses some of the challenges that we face and presents some of the inevitable choices. As the report emphasises, two fundamental issues cast a shadow over future fiscal policies. The first is the persistent poor growth performance since the 2008 financial crisis. The second is the consequence of the succession of crises in recent years that have been addressed through substantial government spending and borrowing.

First, on growth, in conjunction with other high-income European countries, we have experienced a protracted economic slowdown since the financial crisis. The decline has been accompanied by a decline in the share of investment in the economy. The reasons for this are debatable—I do not think that there is any simple, compelling explanation. However, personally, I am persuaded that one contributing factor is that the European countries, including the UK, overreacted to the financial crisis by imposing excessive regulation on the banking system and the regulations that followed reduced the available finance for many small and medium-sized businesses.

In contrast, the US has managed to avoid the extent of the slowdown in growth that Europe has experienced. However, both the US and Europe are grappling with the consequences of deindustrialisation of traditional industries, and we are now witnessing the unfortunate resort of the United States to extraordinary tariff levels. I do not think anybody can be confident about growth rates over the medium term, which is going to have a significant impact on our own debt arithmetic.

The second core issue that has been mentioned is the consequence of the series of crises in recent years: the bank bailouts, the Covid pandemic support and the energy crisis. In each case they were funded by increased public spending and borrowing, and that is really the cause of this extraordinary rise in the debt ratio. There was a similar outcome in many other countries, as has been said. However, this is not too much of a comfort to thank, as it still leaves us, as the noble Lord, Lord Bridges, mentioned, with an inadequate fiscal buffer for the possibility of future economic shocks.

The report outlines some of the challenges to debt sustainability. These include continuing high debt interest payments by government; adapting to an ageing population, which is the subject of our current inquiry; transitioning to net zero; and, of course, future defence commitments. We should also consider the decline in the number of people available for work since Covid as another challenge—it was discussed in the committee’s most recent inquiry—and what we now see today: the extraordinary threat of serious trade wars.

The report discusses the case for a fiscal framework that will bring down the debt ratio over time. In general terms, this is consistent with the framework established by the Government in the last Budget—at least in spirit, if possibly not in detail. However, experience suggests that attempting to fine-tune fiscal outcomes on a year-by-year basis is nearly impossible and can lead to poor decisions, especially when the margin for error is wafer thin. What matters most is the direction of travel and the need for the debt trajectory to be downward.

Finally, the report highlights the difficulties we could face in delivering public services without further increases in the tax burden. This all points to the necessity of a long-term approach and a willingness to take some very difficult decisions.