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Friday 25th April 2025
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10:07
Lord Bridges of Headley (Conservative)
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**** Possible New Speaker ****
My My Lords, My Lords, the My Lords, the debate My Lords, the debate on My Lords, the debate on the report of the Economic Affairs Committee on national debt, it is time for tough decisions. Lord
**** Possible New Speaker ****
Bridges of Headley. It gives me great pleasure to open this debate. Let me start by open this debate. Let me start by thanking everyone is coming on this lovely sunny dear. In particular, the members of the committee for their hard work and their commitment their hard work and their commitment over the years in which I was Chair. Sadly, I no longer check the committee but I passed the that onto committee but I passed the that onto the very capable hands of Lord Wood, we look forward to hearing from later.
I would also like to thank, later. I would also like to thank, before I go on, the committee clerks, both of whom are present, a policy adviser and our specialist adviser as well and indeed to all those who give evidence to this report. This report should the House I think is at its best. It was a great cross-party effort by a team effort. I would like to thank everyone for all that they did. The sustainability of our national debt is, in my mind, a central issue of our time.
How we manage it and ensure that it remains sustainable touches on almost every aspect of our economy and our way of life. Between the turn-of-the-century and March last year, public sector net debt excluding the Bank of England troubled to just under 100% GDP. This rise was turbocharged by successive Governments responses to the financial crisis, to COVID, and then the energy shock. In the past, such a sustained increase only happened during wartime. This time, as our debt grew, so, my Lords commended the conspiracy and silence about it.
None of the major parties wanted to confront head on the economic and social consequences of this rising tide of red ink, so at the start of last the Economic Affairs Committee decided to give this issue the attention it truly deserved by asking a very basic question. How sustainable is our national debt? And before I go any further, let define what the committee meant by sustainability. Sustainability depends on tax and spending policies which credibly align with expectations for economic growth and the cost of borrowing.
It is the trajectory rather than the level of debt, and our ability to service our debt which should be the principal considerations when assessing debt sustainability. It debt level risks becoming unsustainable if there is an insufficient buffer to absorb future economic shocks, or if a government's approach to fiscal policy creates a long-term trajectory of increasing debt service costs. Now, looking at our nations debt through this prism, our findings paint a very dark picture of our nation's finances.
Our core conclusion was that without an appropriate fiscal policy that addresses the challenges the UK faces, there is a risk of the debt becoming unsustainable, and we stated that if we wished to maintain the level and quality of public services and benefits we have come to expect, we face a choice. Taxis will need to rise, or the state will need to do less. Addressing this will demand clarity, as to their responsibilities and role of the individual versus that of the state.
Modelling through is not an option. If this choice is conducted in this parliament, the UK risks being on a path to unsustainable debt. Why did we come to this conclusion? First, the trends that helped us manage to bring down our debts in the past have been thrown into reverse. We now face what I call the D's, higher defence spending, the pressure of demographic change, decarbonisation in the green transition, dependency, especially in terms of labour marketing activity and the welfare cost, and, of course, the cost of servicing debt itself.
Another reason for our concern was growth. If real interest rates exceed the growth of primary income there must be a surplus, in other words net of interest payments must be less than Government revenue to prevent that ratio rising. And, my Lords, was grossly anaemic we heard evidence of how the UK risks being sucked into a debt trap. Furthermore, we pointed out that while high net migration has boosted GDP growth, it cannot be the solution to debt sustainability, for it has made little impression on for it has made little impression on GDP per head.
The third reason for our concern was the structure. Successive rounds of quantitative using have seen long-term debt excused for short-term debt and a greater proportion of debt is index linked and held by overseas investors. This has made the cost of servicing the U.K.'s debt more sensitive to rises in interest rates and inflation as well as sudden changes in investor sentiment. And given today's geopolitical risks, Government needs a larger fiscal buffer if it is to weather future economic shocks. Finally, we were concerned about the physical rules.
We said rules should help in this dozen accountable for reducing that steadily, as a proportion of GDP over time. Therefore, the concept of a rolling target for debt creates a misleading impression as to the true state of the public finances and hides the need to take difficult decisions to secure debt sustainability in the medium to long-term. Since the report's publication, we have had a budget, we have had a spring statement. We have seen the impact of other challenges created by another, this time Donald Trump.
We have received the government's written response to our report. And in that response, for which I am most grateful, the following passage stuck out. Let me quote. The Government agrees with the report. That difficult decisions are required to avoid the U.K.'s debt being an unsustainable path, and it goes on. The budget took the necessary difficult decisions to put the public finances on a sustainable path. Setting realistic plans for public spending while raising revenue to create the conditions for growth.
This will be supported by the Governments new fiscal rules. An let's just dissect this passage. First, the difficult decisions. Yes, tax as a share of GDP is going to rise to an historic high in 2027. And remain at that level for the rest of this Parliament. I do not think any of us would dispute that raising taxes to an historic high counts as a difficult decision. But has it put our public finances on a sustainable path? And is it this course of action creating growth as the Chancellor's letter stated.
Let's start, on Wednesday the show that debt as a percentage of GDP remains at levels last seen in the 1960s. And looking ahead, the OBR shows that in 2025 to 2026 to the end of the decade debt rises by an average of almost £11 billion more every year. Although public sector net debt will cost a fraction next year it will then rise back to 96.1% in 2029/30. Obviously, the Government has changed the definition of death that it is using for its fiscal rule, but as the OBR states, whichever of the four definitions of debt one uses, all four showed that remaining at historically high levels within the forecast period and show debt to be higher in 2029 and 30 than in 2024 and 25.
So, next, is the Government creating the conditions for growth as the Chancellor states? Growth largely stagnated over the second half of 2024 and is now forecast to be 1% this year, half of the October forecast. And that forecast would, itself, easily be thrown off course. One point, World Bank rates and yields on guilt issued across the forecast? Both to be 0.6 % higher, that is less than the 1% volatility in 10 year gilt since early October. That, alone, would be enough to eliminate the minuscule headroom the Government has to meet its fiscal As to tax and spending the OBR assume that unprotected department budgets will be cut amongst other things and the welfare reforms are uncertain and previous reforms have saved much less than previously expected.
Even all these uncertainties and the probability of meeting the fiscal target is 54% and meeting the fiscal target is 54% and the debt target 51%. That rings me to the fiscal rules. The debt target is been to the third year in the forecast, a year that continuously moves forward and this, the Chancellor's letters state, avoids the need to make sharp policy adjustments in response to small changes in the forecast or economic shocks. I don't buy this argument for rejecting our proposal.
Our proposal was for debt to hit a fixed target in a given year and, unless there are exceptional reasons. So economic shocks will be catered for. If small changes means the government cannot meet its rule suggests a fiscal offer was not Elton. The fiscal framework should show whether there is a sufficient fiscal buffer to withstand an economic shock. The government plans show why this is so badly needed. Look at this buffer for meeting the debt rule. A margin of 0.4% of GDP, 15 billion in 29-30.
It is not a buffer, it is a wafer that will snap at the slightest tap, let alone an economic shock. The central question in my mind is not whether the government has taken tough decisions on public finances, it is whether the government has taken the right tough decisions. Yes, the world has changed since we wrote the report, but back in September we knew defence spending was going to have to rise. We knew the pressures public services were under and we absolutely knew in a volatile world we had to build up a fiscal buffer to protect us from unforeseen shocks.
We knew this and the committee said this in the report. So what I would like to hear from the noble Lord the Minister are some answers to some basic questions. Given the Chancellor wrote to me on 15 November saying that her budget had put our finances on a sustainable path, why did she then had to rewrite her plans in the spring statement 130 days later? Next, given the Chancellor wrote in a letter that her Budget created conditions for growth, why has the forecast been halved? Given that the Chancellor assured us that the Budget has taken tough decisions to put us on a sustainable path and she will not change her fiscal rules, will she not be coming back with more borrowing or taxes? I have a sneaky suspicion we will not get clear answers to these questions.
Confirming my fears that as our report said, we will continue muddling through. We will continue not been honest about the scale of the challenges we face and the impact they have for our tax and spending policies and therefore the risk of our debt becoming unsustainable will continue to grow.
Lord Bridges of Headley (Conservative)
**** Possible New Speaker ****
My My Lords, My Lords, the My Lords, the debate My Lords, the debate on My Lords, the debate on the report of the Economic Affairs Committee on national debt, it is time for tough decisions. Lord
**** Possible New Speaker ****
Bridges of Headley. It gives me great pleasure to open this debate. Let me start by open this debate. Let me start by thanking everyone is coming on this lovely sunny dear. In particular, the members of the committee for their hard work and their commitment their hard work and their commitment over the years in which I was Chair. Sadly, I no longer check the committee but I passed the that onto committee but I passed the that onto the very capable hands of Lord Wood, we look forward to hearing from later.
I would also like to thank, later. I would also like to thank, before I go on, the committee clerks, both of whom are present, a policy adviser and our specialist adviser as well and indeed to all those who give evidence to this report. This report should the House I think is at its best. It was a great cross-party effort by a team effort. I would like to thank everyone for all that they did. The sustainability of our national debt is, in my mind, a central issue of our time.
How we manage it and ensure that it remains sustainable touches on almost every aspect of our economy and our way of life. Between the turn-of-the-century and March last year, public sector net debt excluding the Bank of England troubled to just under 100% GDP. This rise was turbocharged by successive Governments responses to the financial crisis, to COVID, and then the energy shock. In the past, such a sustained increase only happened during wartime. This time, as our debt grew, so, my Lords commended the conspiracy and silence about it.
None of the major parties wanted to confront head on the economic and social consequences of this rising tide of red ink, so at the start of last the Economic Affairs Committee decided to give this issue the attention it truly deserved by asking a very basic question. How sustainable is our national debt? And before I go any further, let define what the committee meant by sustainability. Sustainability depends on tax and spending policies which credibly align with expectations for economic growth and the cost of borrowing.
It is the trajectory rather than the level of debt, and our ability to service our debt which should be the principal considerations when assessing debt sustainability. It debt level risks becoming unsustainable if there is an insufficient buffer to absorb future economic shocks, or if a government's approach to fiscal policy creates a long-term trajectory of increasing debt service costs. Now, looking at our nations debt through this prism, our findings paint a very dark picture of our nation's finances.
Our core conclusion was that without an appropriate fiscal policy that addresses the challenges the UK faces, there is a risk of the debt becoming unsustainable, and we stated that if we wished to maintain the level and quality of public services and benefits we have come to expect, we face a choice. Taxis will need to rise, or the state will need to do less. Addressing this will demand clarity, as to their responsibilities and role of the individual versus that of the state.
Modelling through is not an option. If this choice is conducted in this parliament, the UK risks being on a path to unsustainable debt. Why did we come to this conclusion? First, the trends that helped us manage to bring down our debts in the past have been thrown into reverse. We now face what I call the D's, higher defence spending, the pressure of demographic change, decarbonisation in the green transition, dependency, especially in terms of labour marketing activity and the welfare cost, and, of course, the cost of servicing debt itself.
Another reason for our concern was growth. If real interest rates exceed the growth of primary income there must be a surplus, in other words net of interest payments must be less than Government revenue to prevent that ratio rising. And, my Lords, was grossly anaemic we heard evidence of how the UK risks being sucked into a debt trap. Furthermore, we pointed out that while high net migration has boosted GDP growth, it cannot be the solution to debt sustainability, for it has made little impression on for it has made little impression on GDP per head.
The third reason for our concern was the structure. Successive rounds of quantitative using have seen long-term debt excused for short-term debt and a greater proportion of debt is index linked and held by overseas investors. This has made the cost of servicing the U.K.'s debt more sensitive to rises in interest rates and inflation as well as sudden changes in investor sentiment. And given today's geopolitical risks, Government needs a larger fiscal buffer if it is to weather future economic shocks. Finally, we were concerned about the physical rules.
We said rules should help in this dozen accountable for reducing that steadily, as a proportion of GDP over time. Therefore, the concept of a rolling target for debt creates a misleading impression as to the true state of the public finances and hides the need to take difficult decisions to secure debt sustainability in the medium to long-term. Since the report's publication, we have had a budget, we have had a spring statement. We have seen the impact of other challenges created by another, this time Donald Trump.
We have received the government's written response to our report. And in that response, for which I am most grateful, the following passage stuck out. Let me quote. The Government agrees with the report. That difficult decisions are required to avoid the U.K.'s debt being an unsustainable path, and it goes on. The budget took the necessary difficult decisions to put the public finances on a sustainable path. Setting realistic plans for public spending while raising revenue to create the conditions for growth.
This will be supported by the Governments new fiscal rules. An let's just dissect this passage. First, the difficult decisions. Yes, tax as a share of GDP is going to rise to an historic high in 2027. And remain at that level for the rest of this Parliament. I do not think any of us would dispute that raising taxes to an historic high counts as a difficult decision. But has it put our public finances on a sustainable path? And is it this course of action creating growth as the Chancellor's letter stated.
Let's start, on Wednesday the show that debt as a percentage of GDP remains at levels last seen in the 1960s. And looking ahead, the OBR shows that in 2025 to 2026 to the end of the decade debt rises by an average of almost £11 billion more every year. Although public sector net debt will cost a fraction next year it will then rise back to 96.1% in 2029/30. Obviously, the Government has changed the definition of death that it is using for its fiscal rule, but as the OBR states, whichever of the four definitions of debt one uses, all four showed that remaining at historically high levels within the forecast period and show debt to be higher in 2029 and 30 than in 2024 and 25.
So, next, is the Government creating the conditions for growth as the Chancellor states? Growth largely stagnated over the second half of 2024 and is now forecast to be 1% this year, half of the October forecast. And that forecast would, itself, easily be thrown off course. One point, World Bank rates and yields on guilt issued across the forecast? Both to be 0.6 % higher, that is less than the 1% volatility in 10 year gilt since early October. That, alone, would be enough to eliminate the minuscule headroom the Government has to meet its fiscal As to tax and spending the OBR assume that unprotected department budgets will be cut amongst other things and the welfare reforms are uncertain and previous reforms have saved much less than previously expected.
Even all these uncertainties and the probability of meeting the fiscal target is 54% and meeting the fiscal target is 54% and the debt target 51%. That rings me to the fiscal rules. The debt target is been to the third year in the forecast, a year that continuously moves forward and this, the Chancellor's letters state, avoids the need to make sharp policy adjustments in response to small changes in the forecast or economic shocks. I don't buy this argument for rejecting our proposal.
Our proposal was for debt to hit a fixed target in a given year and, unless there are exceptional reasons. So economic shocks will be catered for. If small changes means the government cannot meet its rule suggests a fiscal offer was not Elton. The fiscal framework should show whether there is a sufficient fiscal buffer to withstand an economic shock. The government plans show why this is so badly needed. Look at this buffer for meeting the debt rule. A margin of 0.4% of GDP, 15 billion in 29-30.
It is not a buffer, it is a wafer that will snap at the slightest tap, let alone an economic shock. The central question in my mind is not whether the government has taken tough decisions on public finances, it is whether the government has taken the right tough decisions. Yes, the world has changed since we wrote the report, but back in September we knew defence spending was going to have to rise. We knew the pressures public services were under and we absolutely knew in a volatile world we had to build up a fiscal buffer to protect us from unforeseen shocks.
We knew this and the committee said this in the report. So what I would like to hear from the noble Lord the Minister are some answers to some basic questions. Given the Chancellor wrote to me on 15 November saying that her budget had put our finances on a sustainable path, why did she then had to rewrite her plans in the spring statement 130 days later? Next, given the Chancellor wrote in a letter that her Budget created conditions for growth, why has the forecast been halved? Given that the Chancellor assured us that the Budget has taken tough decisions to put us on a sustainable path and she will not change her fiscal rules, will she not be coming back with more borrowing or taxes? I have a sneaky suspicion we will not get clear answers to these questions.
Confirming my fears that as our report said, we will continue muddling through. We will continue not been honest about the scale of the challenges we face and the impact they have for our tax and spending policies and therefore the risk of our debt becoming unsustainable will continue to grow.
10:20
Lord Liddle (Labour)
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Lord Liddle (Labour)
The question is that this motion be agreed to.
**** Possible New Speaker ****
My Lords, I would like to start off by saying what and excellent off by saying what and excellent report this is, a very challenging report, and it is exactly the kind report, and it is exactly the kind of thing that the House of Lords of thing that the House of Lords exists to do and that the political party find very difficult to address. I would also like to address. I would also like to congratulate Lord Bridges of Hedley, who I have always seen as one of the stars of the benches opposite for his excellent introduction to this debate.
I do not agree with some of it, but it was challenging and he was asking a lot of the right was asking a lot of the right questions. I think the, I suppose the side of the argument we should not be as worried about, this question of debt as Lord Bridges lays out, is that we are sort of middle of the international pack. middle of the international pack. That, I think, is some reassurance. However, we live in a very unstable world.
Goodness knows what is going to happen in the United States and we do have, as he pointed out, very particular vulnerabilities. We are dependent on the kindness of foreigners to fund our borrowing. We do not have the high domestic savings levels that countries like savings levels that countries like Italy and Japan have, and we are, you know, I do not want to get back into the sort of European arguments that I have always argued for, but I think it is worth pointing out to the House that Greece now pays a lower interest rate on its debt than we do and that is because they have the power of the European Central Bank behind them.
So I know that that is my view. And I also agree with your ridges that there are really big challenges coming down the track. -- And I agree with Lord Bridges. My worry is we must not set debt rule that rules out investment in growth because if the interest rate is higher than the growth rate, you are in deep trouble. So you have to find a way of raising the growth rate and that requires a very strong policy of public investment, which I believe the government is doing.
Things like the Oxford Cambridge link and the developments around it are very important. My own favourite development would be a massive transformation of urban connectivity in the north of England, which I think would have a very beneficial effect on productivity. Spending we have to be really Tah. We have to attack bureaucracy. -- Really Tah for. We have to take on vested public interest and it is very difficult for people on our side of the House you have a lot of friends in the public sector trade unions, but we have to be prepared to have a policy of reform.
But in addition to
**** Possible New Speaker ****
My Lords, I would like to start off by saying what and excellent off by saying what and excellent report this is, a very challenging report, and it is exactly the kind report, and it is exactly the kind of thing that the House of Lords of thing that the House of Lords exists to do and that the political party find very difficult to address. I would also like to address. I would also like to congratulate Lord Bridges of Hedley, who I have always seen as one of the stars of the benches opposite for his excellent introduction to this debate.
I do not agree with some of it, but it was challenging and he was asking a lot of the right was asking a lot of the right questions. I think the, I suppose the side of the argument we should not be as worried about, this question of debt as Lord Bridges lays out, is that we are sort of middle of the international pack. middle of the international pack. That, I think, is some reassurance. However, we live in a very unstable world.
Goodness knows what is going to happen in the United States and we do have, as he pointed out, very particular vulnerabilities. We are dependent on the kindness of foreigners to fund our borrowing. We do not have the high domestic savings levels that countries like savings levels that countries like Italy and Japan have, and we are, you know, I do not want to get back into the sort of European arguments that I have always argued for, but I think it is worth pointing out to the House that Greece now pays a lower interest rate on its debt than we do and that is because they have the power of the European Central Bank behind them.
So I know that that is my view. And I also agree with your ridges that there are really big challenges coming down the track. -- And I agree with Lord Bridges. My worry is we must not set debt rule that rules out investment in growth because if the interest rate is higher than the growth rate, you are in deep trouble. So you have to find a way of raising the growth rate and that requires a very strong policy of public investment, which I believe the government is doing.
Things like the Oxford Cambridge link and the developments around it are very important. My own favourite development would be a massive transformation of urban connectivity in the north of England, which I think would have a very beneficial effect on productivity. Spending we have to be really Tah. We have to attack bureaucracy. -- Really Tah for. We have to take on vested public interest and it is very difficult for people on our side of the House you have a lot of friends in the public sector trade unions, but we have to be prepared to have a policy of reform.
But in addition to
10:24
Lord Razzall (Liberal Democrat)
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Lord Razzall (Liberal Democrat)
that, and being tough on things like PIP and SEND which have become PIP and SEND which have become ridiculous in terms of their growth, we also have to be fair, and can I just end on this one point. Being just end on this one point. Being fiscally tough does not rule out fairness and one of the things I would like to see in future is a redistributive package which addresses the question of child and pensioner poverty. pensioner poverty.
**** Possible New Speaker ****
My Lords, Lord bridges last
**** Possible New Speaker ****
My Lords, Lord bridges last report as the brilliant chair of our economic committee could not have been more opportune. As he indicated the growth of government borrowing the growth of government borrowing in the last 20 years tells us why we in the last 20 years tells us why we have a problem. In Gordon Brown's last budget as Chancellor public 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 and then record borrowing of £314 billion in the next year pushed public sector net debt up to £2.8 trillion 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 when Gordon Brown presented his 2007 budget.
Now, we fund our deficit historically by the government issuing a high proportion of long dated gilts. This is meant that annual refinancing needs are lower than other G7 countries and changes in interest rates take longer to have effect. Nevertheless, quantitative easing increase the sensitivity of government borrowing costs to short-term movement in interest rates and 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- QBE level of seven years.
Now there can be no doubt that the market requires the Chancellor to stay within her fiscal rules and as Lord ridges 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 rules. The Chancellor will already be hearing voices urging her to ignore her fiscal rules and increase borrowing, but as the chair of legal and general and Barclays and formally a Treasury manager put it 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 of money each year.
That is a clear warning sign." He went on to say no fiscal rule can be perfect but the UK is already treading a very delicate path along a cliff edge in delicate path along a cliff edge in deep fog. Protective fence might not be quite the optimum place, but to remove it seems unlikely to be a good idea. Perhaps a political terms the Chancellor should remember what happened to Liz Truss when she ignore the debt market, but I think it was James Karel, President Clinton's adviser who put it best.
He was of course the man who coined the election phrase it is the economy, stupid. I think in this economy, stupid. I think in this this context it was about the bond market. I suspect the Chancellor feels the same.
**** Possible New Speaker ****
My Lords, Lord bridges last
**** Possible New Speaker ****
My Lords, Lord bridges last report as the brilliant chair of our economic committee could not have been more opportune. As he indicated the growth of government borrowing the growth of government borrowing in the last 20 years tells us why we in the last 20 years tells us why we have a problem. In Gordon Brown's last budget as Chancellor public 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 and then record borrowing of £314 billion in the next year pushed public sector net debt up to £2.8 trillion 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 when Gordon Brown presented his 2007 budget.
Now, we fund our deficit historically by the government issuing a high proportion of long dated gilts. This is meant that annual refinancing needs are lower than other G7 countries and changes in interest rates take longer to have effect. Nevertheless, quantitative easing increase the sensitivity of government borrowing costs to short-term movement in interest rates and 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- QBE level of seven years.
Now there can be no doubt that the market requires the Chancellor to stay within her fiscal rules and as Lord ridges 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 rules. The Chancellor will already be hearing voices urging her to ignore her fiscal rules and increase borrowing, but as the chair of legal and general and Barclays and formally a Treasury manager put it 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 of money each year.
That is a clear warning sign." He went on to say no fiscal rule can be perfect but the UK is already treading a very delicate path along a cliff edge in delicate path along a cliff edge in deep fog. Protective fence might not be quite the optimum place, but to remove it seems unlikely to be a good idea. Perhaps a political terms the Chancellor should remember what happened to Liz Truss when she ignore the debt market, but I think it was James Karel, President Clinton's adviser who put it best.
He was of course the man who coined the election phrase it is the economy, stupid. I think in this economy, stupid. I think in this this context it was about the bond market. I suspect the Chancellor feels the same.
10:28
Lord Burns (Crossbench)
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Lord Burns (Crossbench)
I would like to express my thanks to 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 was not what was relevant, timely and newsworthy. I think we can see that in the report that was published as his time as chair. He summarise very well the report that was completed last September. It remains pertinent. The main emphasis with the report is the need for a fiscal framework for delivering long-term financial sustainability.
However, it does address some of the challenges we face and it presents some of the inevitable choices. As the report emphasises there are two fundamental issues that cast a shadow over future fiscal policy. 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 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 the decline in the share of investment in the economy. The reasons for this are debatable, I don't think there is any simple compelling explanation. However personally I am persuaded that one contributing factor is European countries overreacted to the financial crisis by imposing excessive regulation on the banking system and the regulations that follow reduce the available finance for many small and medium businesses. In contrast to the US, they avoided the extent of the slowdown of growth that Europe has experience, but both the US and Europe grappling with the consequences of the industrialisation of traditional industries and we are now witnessing the United States's extraordinary tariff levels.
Growth rates over the medium-term will have a significant impact on our own debt. The second core issue is the consequence of the series of crises in recent years. The bank bailouts, the COVID pandemic support, the energy crisis. In each case they were funded by increased public spending and borrowing and that is why there is this extraordinary rising this debt ratio. Was a similar outcome in other countries, however it is not a comfort as it still leaves us with an inadequate fiscal buffer for the possibility of future economic These include high debt interest payments continued by Government, adapting to and injuring population, which is the subject of our current enquiry, transition to net zero, and of course future defence commitments.
Which we should also consider the decline in the number of people available for work since COVID is another challenge that was discussed in committees most recent enquiry and, of course, what we now see today is the extraordinary threat of serious trade was. The report discusses the case for a fiscal framework that would bring down the debt ratio over time. In general terms, I think this is consistent with the framework established by the Government of the established by the Government of the last budget in spirit at least, if not possibly in detail.
However, experience does suggest that attempting to fine-tune fiscal outcomes on a year by year basis is nearly impossible. And it can lead to poor decisions, especially when the margin of error, as has been said, is wafer thin. What matters most is the direction of travel and the need for the debt trajectory to go down. Finally, of course the report does highlight 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
**** Possible New Speaker ****
fruitful decisions. It is a pleasure to follow the
However, it does address some of the challenges we face and it presents some of the inevitable choices. As the report emphasises there are two fundamental issues that cast a shadow over future fiscal policy. 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 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 the decline in the share of investment in the economy. The reasons for this are debatable, I don't think there is any simple compelling explanation. However personally I am persuaded that one contributing factor is European countries overreacted to the financial crisis by imposing excessive regulation on the banking system and the regulations that follow reduce the available finance for many small and medium businesses. In contrast to the US, they avoided the extent of the slowdown of growth that Europe has experience, but both the US and Europe grappling with the consequences of the industrialisation of traditional industries and we are now witnessing the United States's extraordinary tariff levels.
Growth rates over the medium-term will have a significant impact on our own debt. The second core issue is the consequence of the series of crises in recent years. The bank bailouts, the COVID pandemic support, the energy crisis. In each case they were funded by increased public spending and borrowing and that is why there is this extraordinary rising this debt ratio. Was a similar outcome in other countries, however it is not a comfort as it still leaves us with an inadequate fiscal buffer for the possibility of future economic These include high debt interest payments continued by Government, adapting to and injuring population, which is the subject of our current enquiry, transition to net zero, and of course future defence commitments.
Which we should also consider the decline in the number of people available for work since COVID is another challenge that was discussed in committees most recent enquiry and, of course, what we now see today is the extraordinary threat of serious trade was. The report discusses the case for a fiscal framework that would bring down the debt ratio over time. In general terms, I think this is consistent with the framework established by the Government of the established by the Government of the last budget in spirit at least, if not possibly in detail.
However, experience does suggest that attempting to fine-tune fiscal outcomes on a year by year basis is nearly impossible. And it can lead to poor decisions, especially when the margin of error, as has been said, is wafer thin. What matters most is the direction of travel and the need for the debt trajectory to go down. Finally, of course the report does highlight 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
**** Possible New Speaker ****
fruitful decisions. It is a pleasure to follow the
10:33
Lord Lamont of Lerwick (Conservative)
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**** Possible New Speaker ****
It is a pleasure to follow the Noble Lord burns, it is a pleasure Noble Lord burns, it is a pleasure to congratulate him on his speech today but also the committee that has produced this report. This debate in a sense this part of the timeline, in essence, because of the IMS warning this week global GDP, that is GDP of all Governments in the world is likely on track to exceed 100% of GDP, so that is a risk to the financial system.
This debate is perhaps not just about the UK, it could be about many countries, including the United States of America. Nevertheless, I think many people were surprised in 2024 when the OBR came out with some certain assumptions that debt to GDP certain assumptions that debt to GDP in this country would rise to 270% in the 2070s. That seems an astonishing increase, how could this be and that is a threat to sustainability. The reasons, as has already been said by Lord Bridges, is that we have seen one of the largest surges in debt since the Second World War in 2020.
The UK debt to GDP ratio was below the average of G-7 into thousand and one and then it moved faster and is now forecast by the IMF to be above the G-7 average 2029. The problem is not just the ratio but also the structure of our debt. And the problem also that Government, this Government, and previous Governments, have tended to react to shocks by spending more money, public expenditure has then increased, borrowing has increased, public spending has then come down, but not to the pre-prices.
That is the story of COVID. And the response to the financial crisis. Why is it that we have this threat to our sustainability? One reason is interest rates which are unlikely, in the future, to be as low as they have been in the recent past and there is a very low nature of interest rates, particularly the content that got us into this situation in the first place. Nobody knows if interest rates are going to be higher in the long run, but many people think that is the case, they are higher today than they were and if the interest rate on Government debt is higher than the growth of GDP, then in the absence of a primary surplus the debt to GDP ratio will increase in the absence of a primary surplus and I do not think the fiscal rules do perhaps the Minister would comment on this, the primary surplus, so the funding of the existing stock of debt is a substantially greater burden today than it has been in the past.
In the 2010s, the years after, debt could be actually stabilised while running the Government deficit to cover 2% GDP today because of higher interest rates with the money in real terms we need a primary surplus greater than 1% GDP in order to stabilise the debt ratio. No, the Government say that we are aiming to achieve growth, that is our get out of jail card, but can the Government actually get a rate of growth that is higher than the interest rate which may increase the growth rate and find that interest rates have increased further, so they are not able to escape from the challenge that confronts them.
Then there is the significant risk of an ageing society. Coming from you. As unique in world history as 2007, one person in work, one person in retirement. This poses huge problems fiscally and depending on the issue it would go. The Prime Minister of Japan moved further along this route and we are in the ageing society certainly the other day Japan is standing on the verge of whether it will continue to function as a society. These words are chilling and we should reflect on the fiscal challenge of the ageing society.
There are no easy answers, so we need to make some tough decisions. Nothing is inevitable, nothing is inevitably going to happen, but if something looks unsustainable, the chances are that it will prove unsustainable and that is the risk we face.
**** Possible New Speaker ****
It is a pleasure if somewhat
**** Possible New Speaker ****
It is a pleasure if somewhat daunting to be following the format permanent secretary of the Treasury and the former Chancellor of the Exchequer and to be shortly followed by the former Government and the Bank of England. However, as a member of the Economic Affairs member of the Economic Affairs Committee, I would first like to acknowledge and salute the Noble acknowledge and salute the Noble Lord bridges for his astute and decisive chairmanship of the committee and for his spot on committee and for his spot on introductory comments.
It is indeed time for tough decisions, but I have to admit to very increasingly cynical about our appetite to face
Lord Lamont of Lerwick (Conservative)
**** Possible New Speaker ****
It is a pleasure to follow the Noble Lord burns, it is a pleasure Noble Lord burns, it is a pleasure to congratulate him on his speech today but also the committee that has produced this report. This debate in a sense this part of the timeline, in essence, because of the IMS warning this week global GDP, that is GDP of all Governments in the world is likely on track to exceed 100% of GDP, so that is a risk to the financial system.
This debate is perhaps not just about the UK, it could be about many countries, including the United States of America. Nevertheless, I think many people were surprised in 2024 when the OBR came out with some certain assumptions that debt to GDP certain assumptions that debt to GDP in this country would rise to 270% in the 2070s. That seems an astonishing increase, how could this be and that is a threat to sustainability. The reasons, as has already been said by Lord Bridges, is that we have seen one of the largest surges in debt since the Second World War in 2020.
The UK debt to GDP ratio was below the average of G-7 into thousand and one and then it moved faster and is now forecast by the IMF to be above the G-7 average 2029. The problem is not just the ratio but also the structure of our debt. And the problem also that Government, this Government, and previous Governments, have tended to react to shocks by spending more money, public expenditure has then increased, borrowing has increased, public spending has then come down, but not to the pre-prices.
That is the story of COVID. And the response to the financial crisis. Why is it that we have this threat to our sustainability? One reason is interest rates which are unlikely, in the future, to be as low as they have been in the recent past and there is a very low nature of interest rates, particularly the content that got us into this situation in the first place. Nobody knows if interest rates are going to be higher in the long run, but many people think that is the case, they are higher today than they were and if the interest rate on Government debt is higher than the growth of GDP, then in the absence of a primary surplus the debt to GDP ratio will increase in the absence of a primary surplus and I do not think the fiscal rules do perhaps the Minister would comment on this, the primary surplus, so the funding of the existing stock of debt is a substantially greater burden today than it has been in the past.
In the 2010s, the years after, debt could be actually stabilised while running the Government deficit to cover 2% GDP today because of higher interest rates with the money in real terms we need a primary surplus greater than 1% GDP in order to stabilise the debt ratio. No, the Government say that we are aiming to achieve growth, that is our get out of jail card, but can the Government actually get a rate of growth that is higher than the interest rate which may increase the growth rate and find that interest rates have increased further, so they are not able to escape from the challenge that confronts them.
Then there is the significant risk of an ageing society. Coming from you. As unique in world history as 2007, one person in work, one person in retirement. This poses huge problems fiscally and depending on the issue it would go. The Prime Minister of Japan moved further along this route and we are in the ageing society certainly the other day Japan is standing on the verge of whether it will continue to function as a society. These words are chilling and we should reflect on the fiscal challenge of the ageing society.
There are no easy answers, so we need to make some tough decisions. Nothing is inevitable, nothing is inevitably going to happen, but if something looks unsustainable, the chances are that it will prove unsustainable and that is the risk we face.
**** Possible New Speaker ****
It is a pleasure if somewhat
**** Possible New Speaker ****
It is a pleasure if somewhat daunting to be following the format permanent secretary of the Treasury and the former Chancellor of the Exchequer and to be shortly followed by the former Government and the Bank of England. However, as a member of the Economic Affairs member of the Economic Affairs Committee, I would first like to acknowledge and salute the Noble acknowledge and salute the Noble Lord bridges for his astute and decisive chairmanship of the committee and for his spot on committee and for his spot on introductory comments.
It is indeed time for tough decisions, but I have to admit to very increasingly cynical about our appetite to face
10:39
Lord Londesborough (Crossbench)
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Lord Londesborough (Crossbench)
up to them, let alone to take them. We have docked 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 timber, report was published last timber, just weeks before Rachael Ray's first budget, which saw another first budget, which saw another rewriting of the fiscal rules as we assured in another £30 billion of assured in another £30 billion of borrowing. Yes, taxes were raised by 40 billion, but at the cost of 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. Through from £300 million in 2001 to approaching 3 trillion brands next year. We have had the financial crisis, the pandemic, Russia's invasion of Ukraine, and the ensuing energy crisis. Yes, each event led to exceptional one-off increases in Government spending, financed entirely by borrowing. But those shocks, I would argue, explain less than half of this 3 million drowned debt pile and obscure the real delays, low growth and poor productivity.
Not only is there no peace surplus but we routinely borrowed £100 billion per year East to fund our deficits. It was 130 billion in fact last year and as we have learned this week, in the near March, it is going to £152 billion, rather worrying £15 billion more than the OPR predicted. More on that in a moment. The resulting interest bill, then £100 billion project cannot be paid by tax revenues. We only meet those interest payments through additional borrowing.
It is a vicious cycle, and he is, of course, unsustainable. And I afraid that this is usual is representing interest rates on debt it seems our interest rates on debt it seems our GDP growth rate even in non-crisis years, a court in a cycle of low growth and productivity accompanied by high borrowing and, crucially, that borrowing has not led to productivity gains. Which 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 and can I suggest to the Minister that we produce an asset register with the of its name on borrowing with a proper impact assessment focusing on ROI, return on investment, to answer this very question.
My final point is the rolling fiscal rule that foresees a budget surplus in five years time. It is a recipe, of course, for deferring tough decisions as we have already heard and it is aided and divided by OBR's record of optimistic forecasting. Since its inception, the OBR has predicted jet inception, the OBR has predicted jet surpluses five years out in the 28 forecasts winning they have achieved forecasts winning they have achieved such a surplus just once in the last 20 years. Let's have some economic growth.
Our public sector net debt has grown by almost 10 times over the last 25 years. Through from £300 million in 2001 to approaching 3 trillion brands next year. We have had the financial crisis, the pandemic, Russia's invasion of Ukraine, and the ensuing energy crisis. Yes, each event led to exceptional one-off increases in Government spending, financed entirely by borrowing. But those shocks, I would argue, explain less than half of this 3 million drowned debt pile and obscure the real delays, low growth and poor productivity.
Not only is there no peace surplus but we routinely borrowed £100 billion per year East to fund our deficits. It was 130 billion in fact last year and as we have learned this week, in the near March, it is going to £152 billion, rather worrying £15 billion more than the OPR predicted. More on that in a moment. The resulting interest bill, then £100 billion project cannot be paid by tax revenues. We only meet those interest payments through additional borrowing.
It is a vicious cycle, and he is, of course, unsustainable. And I afraid that this is usual is representing interest rates on debt it seems our interest rates on debt it seems our GDP growth rate even in non-crisis years, a court in a cycle of low growth and productivity accompanied by high borrowing and, crucially, that borrowing has not led to productivity gains. Which 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 and can I suggest to the Minister that we produce an asset register with the of its name on borrowing with a proper impact assessment focusing on ROI, return on investment, to answer this very question.
My final point is the rolling fiscal rule that foresees a budget surplus in five years time. It is a recipe, of course, for deferring tough decisions as we have already heard and it is aided and divided by OBR's record of optimistic forecasting. Since its inception, the OBR has predicted jet inception, the OBR has predicted jet surpluses five years out in the 28 forecasts winning they have achieved forecasts winning they have achieved such a surplus just once in the last 20 years. Let's have some economic growth.
10:42
Lord Forsyth of Drumlean (Conservative)
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Lord Forsyth of Drumlean (Conservative)
My Lords, it is a pleasure to take part in this debate and I would like to add to the congratulations of the committee and the members for producing this. I was going to say tender debate, but the debate is some seven months after the report was published and quite a lot has changed in that time. It is, of course, addressing the biggest national security, the biggest issue facing the country. The fact that we have an advisory time of four minutes tells you everything about the way in which Parliament is increasingly becoming the decorative part of the constitution.
Apparently we now take on huge unlimited, unknown debt in nationalising industries and give powers to civil servants to force people in private companies to do things on pain of being sent to prison if they do not being sent to prison if they do not and Parliament has no say. It is clearly important that we address this issue, not just in parliament, but in the country. For the lesson of this report is that people, the constituents, the members of the other end, our families have no idea of the crisis that is facing our country looking ahead, and the threat that presents to our ability to deliver pensions and important public services.
And even this week we learned that borrowing has turned out to be 15 billion more than expected, or if we take the year to March, as the Noble Lord said, the March, as the Noble Lord said, the year to March we spent 151 point billion pounds more than we had in income and we are relying on growth which we have not seen since 2008. Rescuing us from that situation. And as the report points out, there are fundamental strategic reasons why we need to tackle this now, and the longer that we which then the bigger the problem will be, and these include the fact that in the 80s we thought we had a peace dividend.
Now we realise that we should not have spent that money and we committed those expenditure to welfare and other matters. The baby-boom is were creating wealth and now they, like me, are going to be a burden on the state in one form or another and the notion that we can finance the triple lock on pensions however popular it may be in those circumstances is ridiculous. And we need to get the country to understand why it is ridiculous and to lower their expectations for the future.
We had growth and world trade. Now we have, I hesitate to use an adjective, and administration in the United States which is determined to destroy world trade. I asked that we should forgive them for they know not what they do, but the impact on growth is going to be the impact on growth is going to be And as my noble friend Lord ridges pointed out, life expectancy is increasing and therefore the success of the National Health Service, all of these point to further pressures, which are going to be difficult to which are going to be difficult to sustain.
I have to say that whenever there is a consensus on anything, one ought to worry about it. There was a consensus on quantitative easing. There was a consensus on lockdown and now we are paying the price of that quantitative easing, of printing that money on a vast scale. It has left us as a country or vulnerable to rises in interest rates, it has left us more dependent on the kindness of strangers, on foreign investors at a time when the world as a whole is under severe pressure, and it has given us, I think the latest estimate is that you be war.
Some £150 billion. -- Is that quantitative easing will cost In the future there will be one person in work for everyone person in retirement. That is a huge burden. This report should be taken seriously by the government and the opposition as well. We need a consensus in our country. We need to explain to our people the crisis we are facing, the crisis in the context of the world context, and we need to cut our cloth in accordance with our ability to play.
ACRE I invite Lord Weir of Ballyholme to invite Lord Weir of Ballyholme to My My Lords, My Lords, my My Lords, my Lords, My Lords, my Lords, in My Lords, my Lords, in the My Lords, my Lords, in the absence of Lord Weir of Ballyholme, we should move on.
**** Possible New Speaker ****
I congratulate Lord ridges, my predecessor. I thank him for his predecessor. I thank him for his kindness in the tricky transition period between our 10 years and his period between our 10 years and his time chairing the committee. I am now working with the excellent team that helped produce this report.
Apparently we now take on huge unlimited, unknown debt in nationalising industries and give powers to civil servants to force people in private companies to do things on pain of being sent to prison if they do not being sent to prison if they do not and Parliament has no say. It is clearly important that we address this issue, not just in parliament, but in the country. For the lesson of this report is that people, the constituents, the members of the other end, our families have no idea of the crisis that is facing our country looking ahead, and the threat that presents to our ability to deliver pensions and important public services.
And even this week we learned that borrowing has turned out to be 15 billion more than expected, or if we take the year to March, as the Noble Lord said, the March, as the Noble Lord said, the year to March we spent 151 point billion pounds more than we had in income and we are relying on growth which we have not seen since 2008. Rescuing us from that situation. And as the report points out, there are fundamental strategic reasons why we need to tackle this now, and the longer that we which then the bigger the problem will be, and these include the fact that in the 80s we thought we had a peace dividend.
Now we realise that we should not have spent that money and we committed those expenditure to welfare and other matters. The baby-boom is were creating wealth and now they, like me, are going to be a burden on the state in one form or another and the notion that we can finance the triple lock on pensions however popular it may be in those circumstances is ridiculous. And we need to get the country to understand why it is ridiculous and to lower their expectations for the future.
We had growth and world trade. Now we have, I hesitate to use an adjective, and administration in the United States which is determined to destroy world trade. I asked that we should forgive them for they know not what they do, but the impact on growth is going to be the impact on growth is going to be And as my noble friend Lord ridges pointed out, life expectancy is increasing and therefore the success of the National Health Service, all of these point to further pressures, which are going to be difficult to which are going to be difficult to sustain.
I have to say that whenever there is a consensus on anything, one ought to worry about it. There was a consensus on quantitative easing. There was a consensus on lockdown and now we are paying the price of that quantitative easing, of printing that money on a vast scale. It has left us as a country or vulnerable to rises in interest rates, it has left us more dependent on the kindness of strangers, on foreign investors at a time when the world as a whole is under severe pressure, and it has given us, I think the latest estimate is that you be war.
Some £150 billion. -- Is that quantitative easing will cost In the future there will be one person in work for everyone person in retirement. That is a huge burden. This report should be taken seriously by the government and the opposition as well. We need a consensus in our country. We need to explain to our people the crisis we are facing, the crisis in the context of the world context, and we need to cut our cloth in accordance with our ability to play.
ACRE I invite Lord Weir of Ballyholme to invite Lord Weir of Ballyholme to My My Lords, My Lords, my My Lords, my Lords, My Lords, my Lords, in My Lords, my Lords, in the My Lords, my Lords, in the absence of Lord Weir of Ballyholme, we should move on.
**** Possible New Speaker ****
I congratulate Lord ridges, my predecessor. I thank him for his predecessor. I thank him for his kindness in the tricky transition period between our 10 years and his period between our 10 years and his time chairing the committee. I am now working with the excellent team that helped produce this report.
10:49
Lord Wood of Anfield (Labour)
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Lord Wood of Anfield (Labour)
that helped produce this report. There is a lot in this report that is really worth careful study. Particularly the nature and composition of debt, as Lord Lamont and others have discussed. As the report says the question of what exactly our debt problem is not a straightforward one. It's a complex combination of the level of the debt GDP ratio, its trajectory over time, the maturity profile changes, the the maturity profile changes, the robustness of the tax base that finances is paying off, fiscal policy plans and changing the circumstances.
This report really eloquently talks about the pressure points, why debt is a particular problem and under what circumstances. It discusses the key trends, the five, the 5Ds that pushes debt even higher. It provides an excellent and crucial explainer of white especially since COVID the composition of the debt has changed in a worrying way. Now, something that has not been said yet and it's important to note is that this report was written with reference to fiscal rules in particular before the current Chancellor changed various aspects of the fiscal framework.
I think the Chancellor should be congratulated for those changes. Make positive changes in some respects which very much chime with some of the concerns in this report. In particular targeting the shift of the current balance rather than overall borrowing reduces the budgetary incentive to cut valuable investment. I also welcomed the switching the definition to public sector net financial liabilities. The Chancellor retained the principal in her second fiscal rule that needs to be falling at the end of a five year period, now a three year period as of 2026.
Reports main criticism means a rolling target means the rule is easily gained, so you have four years of rising debt and have one year of decline, but still meet the net increase in the stock of debt over time. I think that is a concern. My concern about this rule is slightly different. I think the main problem is it results in governments basing long-term investment decisions and highly contingent uncertain projections that are so dependent on complex unknowable real-world developments.
It is a bit like chasing shadows. Making concrete decisions long-term that have to be changed in virtue of forecasts that probably turn out not to be as accurate as you need them to be. I will finish with three quick reflections. In the speech of being a friendly devils advocate to this report. The debt GDP ratio is lower. The question financial markets are concerned with is whether governments are using borrowing for productive growth enhancing investment, as Lord Liddle referred to earlier, and whether they are prepared to take the steps towards fiscal consolidation Wendy shocks that triggered debt increases subside.
Focus needs to be as much on those two concerns as it is on the numerical debt to GDP ratio. Lastly I have sympathy with economies who think investment in service of long-term objectives crucial to the national interests should be taken the debt target. It doesn't mean they are taken out of public scrutiny. There are lots of public scrutiny. There are lots of things the OBR can do and must do, but it seems to me there is a case for the kind of long-term certainty that Lord Liddle referred to that the private sector and needs in order to know that governments will increase long-term transition investments.
This report really eloquently talks about the pressure points, why debt is a particular problem and under what circumstances. It discusses the key trends, the five, the 5Ds that pushes debt even higher. It provides an excellent and crucial explainer of white especially since COVID the composition of the debt has changed in a worrying way. Now, something that has not been said yet and it's important to note is that this report was written with reference to fiscal rules in particular before the current Chancellor changed various aspects of the fiscal framework.
I think the Chancellor should be congratulated for those changes. Make positive changes in some respects which very much chime with some of the concerns in this report. In particular targeting the shift of the current balance rather than overall borrowing reduces the budgetary incentive to cut valuable investment. I also welcomed the switching the definition to public sector net financial liabilities. The Chancellor retained the principal in her second fiscal rule that needs to be falling at the end of a five year period, now a three year period as of 2026.
Reports main criticism means a rolling target means the rule is easily gained, so you have four years of rising debt and have one year of decline, but still meet the net increase in the stock of debt over time. I think that is a concern. My concern about this rule is slightly different. I think the main problem is it results in governments basing long-term investment decisions and highly contingent uncertain projections that are so dependent on complex unknowable real-world developments.
It is a bit like chasing shadows. Making concrete decisions long-term that have to be changed in virtue of forecasts that probably turn out not to be as accurate as you need them to be. I will finish with three quick reflections. In the speech of being a friendly devils advocate to this report. The debt GDP ratio is lower. The question financial markets are concerned with is whether governments are using borrowing for productive growth enhancing investment, as Lord Liddle referred to earlier, and whether they are prepared to take the steps towards fiscal consolidation Wendy shocks that triggered debt increases subside.
Focus needs to be as much on those two concerns as it is on the numerical debt to GDP ratio. Lastly I have sympathy with economies who think investment in service of long-term objectives crucial to the national interests should be taken the debt target. It doesn't mean they are taken out of public scrutiny. There are lots of public scrutiny. There are lots of things the OBR can do and must do, but it seems to me there is a case for the kind of long-term certainty that Lord Liddle referred to that the private sector and needs in order to know that governments will increase long-term transition investments.
10:53
Lord Howell of Guildford (Conservative)
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Lord Howell of Guildford (Conservative)
Like others I congratulate my
**** Possible New Speaker ****
Like others I congratulate my noble friend ridges on his -- my noble friend Lord Bridges on his noble friend Lord Bridges on his ambition and boldness over the ambition and boldness over the nebulous subject of controlling our nebulous subject of controlling our national debt. I have to confess I do not set my store by fiscal do not set my store by fiscal targets at all, especially when they are suitable to adjustment for any situation.
It's not the Fountain of all goodness. Shocks always happen, as noble friends have already stated. We are in one now and I wish and pray that the authorities of both the governing party and indeed all parties will listen to the warning that we have just had from Lord Forsyth about the extreme seriousness and dangers of a seriousness and dangers of a potential financial Anikei ahead. Borrowing and increasing the
**** Possible New Speaker ****
Like others I congratulate my noble friend ridges on his -- my noble friend Lord Bridges on his noble friend Lord Bridges on his ambition and boldness over the ambition and boldness over the nebulous subject of controlling our nebulous subject of controlling our national debt. I have to confess I do not set my store by fiscal do not set my store by fiscal targets at all, especially when they are suitable to adjustment for any situation.
It's not the Fountain of all goodness. Shocks always happen, as noble friends have already stated. We are in one now and I wish and pray that the authorities of both the governing party and indeed all parties will listen to the warning that we have just had from Lord Forsyth about the extreme seriousness and dangers of a seriousness and dangers of a potential financial Anikei ahead. Borrowing and increasing the