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

Lord Griffiths of Fforestfach Excerpts

Friday 25th April 2025 Lords Chamber

[Lord Griffiths of Fforestfach (Con)]

My Lords, I acknowledge my debt as a member of the committee to the noble Lord, Lord Bridges, as chairman. He was totally engaged, always impartial and invariably responsive to members’ requests, so I thank him.

From the evidence that we have heard in this debate today and from the report, no one can judge that we are in other than a very serious position as a nation. If anything more was needed, there were flashing red lights earlier this week in March’s government borrowing figures. On any sober assessment, this debate has shown that public spending and public borrowing are out of control. At the same time, as the noble Lord, Lord Burns, made very clear, the potential tax revenue we can get from economic growth is going to be meagre, with growth forecasts by the Bank of England, by the OBR and this week by the IMF having been slashed.

I accept, of course, that the Chancellor is not helped by the paralysing uncertainty of the global economy, but we must face the fact that our debt problems are primarily homegrown. Government spending is clearly not under control, and the tax take, despite that, is at its highest level for years.

Meanwhile, the Chancellor recognises that tough choices need to be made. The debt or bond vigilantes may have saddled up, but I do not think that they are hostile to the Chancellor. What they are concerned about is that the Government’s fiscal policy is drifting; there is no clear direction, despite what is said. It appears that the Government are not really in control. This week, the IMF published its annual report and said that the outlook was “severely adverse” for all advanced economies.

I want to mention something that we touched on in the review—certainly questions were asked about it, but they were explored only superficially—and that is a fiscal rule, such as a debt break, placing a ceiling on the ratio of debt to GDP. This is a measure in which I have taken a particular interest because of my academic connections with Switzerland, which adopted a debt break, while Germany followed Switzerland and adopted it too. Today, the ratios of national debt to GDP are 38% in Switzerland and 63% in Germany, and their 10-year bond rates are significantly below the UK’s.

A debt break rule is not simple: it needs to have a ceiling, a cyclical adjustment and an exemption clause. The irony is that the UK once had such a fiscal rule—and who no less than Gordon Brown was Chancellor at the time? In his first Budget of 1997, he introduced a ceiling of 40% of national debt to GDP. When the euro was set up, we did not enter it; the euro set a ceiling of 60% and still does—yet Gordon Brown carried on insisting that the UK should have a rule of 60%.

In conclusion, I believe that there is a strong case for the Government introducing a debt break rule in the UK, accompanying it with actions that restrain the growth of government and reduce the overall burden of taxation.