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

Lord King of Lothbury Excerpts

Friday 25th April 2025 Lords Chamber

[Lord King of Lothbury (CB)]

My Lords, I congratulate my erstwhile colleagues on the Economic Affairs Committee on their excellent report on the national debt. I also congratulate the noble Lord, Lord Bridges, on the clarity of his opening speech and on his outstanding chairmanship of the Select Committee.

The Chancellor of the Exchequer deserves sympathy for the difficult fiscal position that she inherited, but, unfortunately, her new fiscal rules are flawed. When non-negotiable fiscal rules meet reality, my money is on the latter. The Government have two fiscal rules: first, the current Budget must remain in balance or surplus from the third year of the rolling forecast period; and, secondly, net financial debt must fall as a share of the economy by the third year of the forecast period or 2029-30, whichever is the later.

The problem with the first rule is the Chancellor’s argument that:

“Balancing the current budget means that … over the medium term, borrowing is only for investment. This means future generations will not be burdened with the costs of public services today”.


If only that were true. I sympathise with the noble Lords, Lord Liddle and Lord Wood; as my noble friend Lady Wolf said, we have a need for public investment in infrastructure with the hope that it might improve economic growth. However, unlike the private sector, investment in the public sector does not, in most cases, generate an income to the Government that can be used to pay the interest on the debt taken out to finance the investment, and the burden of servicing that debt will fall on future generations.

The problem with the second fiscal rule is perhaps even more serious. Projecting the ratio of debt to national income to be falling in the third year of the forecast horizon is better than the previous metric of a forecast over five years, but it is still Augustinian—“Make me fiscally stable, but not yet”—and even Saint Augustine did not believe in a three-year rolling horizon. As the Select Committee pointed out in its report, a rolling horizon permits the rule to be met while debt keeps rising as a share of national income. The Chancellor defended a rolling horizon by arguing that it avoids the need to make sharp policy adjustments in response to small changes in the forecast, yet in her Spring Statement only a few weeks ago, the Chancellor did exactly that: cutting spending to meet a change in the OBR’s point forecast for 2029-30.

Although the OBR discusses risks to the outlook several years ahead, it presents just one precise number, to which the Chancellor is supposed to respond, and it does so every six months. This is no way to manage public spending. I suggest that the OBR should report only once a year, before the Budget, and focus on a qualitative assessment of risks rather than the spurious precision of a point forecast.

The pandemic is behind us, we have yet to increase defence spending by any significant figure, yet debt is still rising as a share of national income. The choice between raising taxes or cutting spending should not be deferred by resort to a rolling horizon. We owe it to our grandchildren to take seriously the challenge of reducing the national debt.