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

Lord Razzall Excerpts

Friday 25th April 2025 Lords Chamber

[Lord Razzall (LD)]

My Lords, in the light of recent events, the last report from the noble Lord, Lord Bridges, as the brilliant chair of our Economic Affairs Committee, could not have been more opportune. As he indicated, the growth of government borrowing in the last 20 years tells us why we have a problem. In Gordon Brown’s last Budget as Chancellor, public sector net debt was 35.1% of gross domestic product. When Covid struck five years ago, debt rose to almost 100% of GDP. Record borrowing of £314 billion the following year pushed public sector net debt up to £2.8 trillion pounds in cash terms, which is £1 trillion greater than before the pandemic and more than five times the £535 billion when Gordon Brown presented his 2007 Budget.

Historically, we have funded our deficit by the Government issuing a high proportion of long-dated gilts. This has meant that annual refinancing needs are lower than in other G7 countries and changes in interest rates take longer to have effect. Nevertheless, quantitative easing increased the sensitivity of government borrowing costs to short-term movements in interest rates. The unwinding of quantitative easing will take until 2028, according to the Office for Budget Responsibility, before the effective maturity of our debt returns to the pre-QE level of seven years.

There can be no doubt that the market requires the Chancellor to stay within her fiscal rules. As the noble Lord, Lord Bridges, indicated, it is never going to take much for the targets to be missed, even before the reduction in our growth forecast and Trump’s tariff wars. The Chancellor will already be hearing siren voices urging her to ignore her fiscal rules and increase borrowing, but as Sir John Kingman—now chair of Legal & General and Barclays, and formerly a Treasury mandarin—put it so well the other day, those who believe additional borrowing to be the answer should

“glance at the significant rise in the premium the UK is already having to pay in world markets to borrow very large sums each year … That is a clear warning sign. Of course no fiscal rule can be perfect. But the UK … is already treading a very delicate path, along a cliff-edge in deep fog. The protective fence may or may not be in quite the optimal place. But removing it seems unlikely to be a good idea”.

Perhaps in more political terms the Chancellor should remember what happened to Liz Truss when she ignored the debt market. However, it was James Carville, President Clinton’s adviser, who put it best. He was the man who coined the election phrase, “It’s the economy, stupid”. In this context, I think his better bon mot was, when asked who he would like to be reincarnated as, he replied, “The bond market”. I suspect the Chancellor feels the same.