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

Lord Londesborough Excerpts

Friday 25th April 2025 Lords Chamber

[Lord Londesborough (CB)]

My Lords, it is a pleasure, if somewhat daunting, to follow the former Permanent Secretary of the Treasury and the former Chancellor of the Exchequer, and to be shortly followed by the former Governor of the Bank of England. However, as a member of the Economic Affairs Committee, I first acknowledge and salute the noble Lord, Lord Bridges, for his astute and incisive chairmanship of the committee and his spot-on introductory comments.

It is indeed time for tough decisions, but I have to admit to growing increasingly cynical about our appetite to face up to them, let alone to take them. We have ducked those decisions for the majority of the last 20 years, and I fear we will go on doing so for the next 20. This highly topical report was published last September, just weeks before Rachel Reeves’s first Budget, which saw another rewriting of the fiscal rules as we ushered in another £30 billion of borrowing. Yes, taxes were raised by £40 billion, but at the cost of future growth.

Our public sector net debt has grown by almost 10 times over the last 25 years, from £300 billion in 2001 to approaching £3 trillion next year. We have had the financial crisis, the pandemic, Russia’s invasion of Ukraine and this ensuing energy crisis. Each event led to exceptional, “one-off” increases in government spending financed entirely by borrowing. But I argue that those shocks explain less than half of this £3 trillion debt pile and obscure the real malaise: low growth and poor productivity.

Not only is there no peace dividend or surplus in stable years, but we routinely borrow at least £100 billion a year to fund our budget deficits. In fact, it was £130 billion last year and, as we have learned this week, in the year to March it has grown to £152 billion—rather worryingly, £15 billion more than the OBR predicted; more on that in a moment.

The resulting interest bill of more than £100 billion a year cannot be paid by tax revenues. We meet those interest payments only through additional borrowing. It is a vicious cycle and it is, of course, unsustainable. I am afraid that business is usual is that R, representing interest rate on debt, exceeds G, our GDP growth rate, even in non-crisis years. So we are caught in a cycle of low growth and productivity accompanied by high borrowing and, crucially, that borrowing has not led to productivity gains.

This raises the uncomfortable question: how much of this £3 trillion debt has been channelled into truly productive areas that will accelerate growth, as opposed to simply financing budget deficits? I suggest to the Minister that we produce an asset register on our borrowing worthy of its name, with a proper impact assessment focusing on ROI—return on investment—to answer this very question.

My final point is on the rolling fiscal rule that foresees a budget surplus in five years’ time. It is a recipe for deferring tough decisions, as we have already heard, and it is aided and abetted by the OBR’s record of optimistic forecasting. Since its inception, the OBR has predicted budget surpluses five years out in 20 of its 28 forecasts when, in fact, the UK achieved such a surplus just once in the last 20 years. Let us have some economic realism.