Fiscal Outlook

Lord Bridges of Headley Excerpts

Thursday 10th September 2026 Lords Chamber

Moved by

[Lord Bridges of Headley]

That this House takes note of the UK’s fiscal outlook.

[Lord Bridges of Headley (Con)]

My Lords, one word hovers like a spectre over this debate on the fiscal outlook: debt. Two years ago to this very day, your Lordships’ Economic Affairs Committee, which I then chaired, published a report on our national debt, It’s Time for Tough Decisions. It concluded that the UK’s national debt risks becoming unsustainable unless tough decisions are taken in this Parliament to address the major challenges that the UK faces and put debt on a gradual downward path. We found that sustainability depended not just on the level of debt but on having sufficient fiscal buffers to absorb future shocks and on avoiding a trajectory of rising debt service costs.

Two years on, our debt stands at nearly £3 trillion, over 94% of GDP, almost £96 billion higher than a year ago and, relative to the size of our economy, at levels last seen in the early 1960s. My argument today is that our debt remains on an unsustainable path. Our fiscal buffer is dangerously small. The risks facing our public finances have grown and are growing still. All this is thanks in very large part to the actions that this Government have taken.

Some may point to the fact that the debt accumulated during the last Administration, which is correct. I have argued that the last Government made mistakes, but however critical one is of that Government, one must accept that they faced Covid and the energy shock. Others may argue that Britain has carried far higher debts before—notably after the Second World War. That too is correct. However, after 1945, the baby boom, the peace dividend and the opening of world trade all boosted growth, which helped to lower our debts.

Today, Governments here and worldwide face the challenges of the Ds: higher defence spending, the demographic challenge of ageing populations, dependency—large welfare states—and decarbonisation, with the green transition. All these Ds increase demands for higher government spending at a time when Governments are already drowning in debt.

Across the advanced economies, government debt rose from around 70% of GDP on the eve of the financial crisis to around 110% today. That debt explosion took place during an era of low inflation, ultra-low interest rates and unprecedented quantitative easing, and in a world that is largely at peace. That world has gone, but government debt remains at record levels and is growing. The OECD expects Governments to borrow around $18 trillion this year. Almost four-fifths of that is simply to refinance debt coming due. Advanced economies spent more than $2 trillion on debt servicing alone last year. Dozens of nations, including the USA, now spend more on debt servicing than defence. In this rising tide of red ink, the price that each Government pays on their debt—ours included—is ultimately determined by investors, by their judgment on the health of a nation’s economy. To coin the Prime Minister’s phrase, it is that thing of being in hock to the bond market.

That brings us to the question that bond traders and all of us here today are asking: just how resilient are the UK’s finances? On Monday, the Chancellor told us that Britain is turning a corner. If so, surely debt should be on a steady downward path—but no, it is not. Debt will be higher at the end of this Parliament than at the start, before falling only slightly to around 95% of GDP by 2030-31. Even that fall is questionable. As the OBR notes:

“Plans to reduce borrowing and stabilise debt have been a common feature of forecasts since the pandemic, but have not yet materialised in outturn”,


or, as St Augustine might have put it, “Lord, make me fiscally responsible, just not yet”.

Indeed, the OBR concluded in July that Britain’s public finances were

“in a challenging position relative to history and to other similar countries, with … debt having increased by one of the largest shares of GDP of any advanced economy over the past two decades”.

It is the structure of our debt that makes us unusually vulnerable. QE shortens its effective maturity, while Britain has a particularly large stock of index-linked debt, so when borrowing costs rise, we feel the effects very quickly. Even before the economic impact of the Gulf war, the OBR was forecasting that debt servicing would cost us £110 billion in 2025-26. That is 3.5% of our national income, which is more than we have spent on education and approaching twice what we spend on defence. By 2030-31, that figure is expected to hit £137 billion.

The bond market is beginning to reflect investors’ anxiety about all this. Britain may not be an outlier in the amount it owes, but it is becoming an outlier in what it costs us to borrow. Our 10-year borrowing costs are now the highest in the G7 and the fourth highest in the advanced world. On Tuesday, Britain paid the highest borrowing cost on a sale of 30-year debt in almost three decades, and that rising interest bill is eating into the Government’s fiscal buffer. At the spring forecast, that buffer was around £24 billion. Against £3 trillion of national debt and £1 trillion of annual spending, that is not a buffer; that is a wafer, and some estimates suggest it has already shrunk to just £5 billion.

The Chancellor’s optimism cannot camouflage the facts: debt is high and still rising, its structure leaves us unusually exposed to shocks, our fiscal buffer is wafer thin and shrinking, and investors are demanding an increasingly high price to lend to us. In that sense, though, the Chancellor may be correct: we are turning a corner. Ken Rogoff, the former chief economist of the IMF, now puts the chances of a major UK debt crisis by 2030 at more than 50:50.

This brings us to a central question: what would convince investors that Britain has a credible plan to stabilise its debt? The answer, I would argue, lies not so much in economic theory as in political choices. A central conclusion of the Economic Affairs Committee two years ago was:

“If we wish to maintain the level and quality of public services and benefits that we have come to expect, we face a choice: taxes will need to rise or the state will need to do less. Addressing this will demand clarity as to the responsibilities and the role of the individual versus that of the state. Muddling through is not an option. If this choice is ducked in this Parliament, the UK risks being on a path to unsustainable debt”.


Two years on, my argument is not that the Government have failed to take tough decisions: it has, but it has taken the wrong tough decisions. Labour decisions have weakened growth, dug us deeper into the debt hole and increased our fiscal vulnerability. What is needed is a plan to control spending and strengthen the underlying budget so we live within our means, bear down on inflation and the cost of our debt, and, above all, get the economy growing faster. But the Government’s actions have produced the reverse of all that.

Let us look at spending. I was intrigued to hear the Chancellor say on Monday:

“Staying true to our values means being honest about the need to control government spending”.


For a moment, I thought I was listening to fake news. By the end of this Parliament, the Government will be spending around £260 billion more a year than at the start. Public spending will absorb more than 44% of national income. That is a level we have not seen on a sustained basis, outside shocks and their aftermath, since the 1970s. Let us look where that increase is going. Welfare spending is set to rise by some £75 billion a year over this Parliament, to £390 billion. Within that, spending on health and disability benefits is forecast to hit £104 billion, an increase of more than a third.

Instead of taking the tough decisions needed to control spending, the Government have chosen higher spending, financed by higher taxes. Working hard, investing, setting up a business, employing more people—the very activities that drive growth and generate the revenue needed to stabilise our debt—are being taxed more heavily. To give one example, the rise in employers’ national insurance alone means an employer now pays around £900 more a year for every worker on median earnings, and the tax burden is set to rise still further, to the highest level on record.

Then there is inflation. I fully concede that the war in the Gulf has made the fight against inflation more difficult, but that is all the more reason for the Government to double down on measures to cut costs on business. I welcome the Government’s promise to take an axe to the bureaucracy holding back private investment, but why are they stopping there? If regulation is holding back investment and growth, the Government should take an axe to the burdens they have themselves imposed on business and employers, such as their energy policies and the Employment Rights Act—an Act that will impose direct costs on business of around £1 billion a year.

These policies have undermined growth, which is the all-important ingredient to bring down our debt. The Government will rightly point out that there was stronger growth in the first half of this year, but two good quarters do not solve the structural problem. The OBR still puts our potential growth rate at only 1.5% and forecasts GDP per head to grow by just 1.1% a year over the rest of the decade. That is roughly half its pre-financial crisis rate. For debt sustainability, it is that underlying rate of growth—year on year, not a couple of strong quarters—that matters.

Let us put this together. What lies around the corner? A higher-spending Government, extracting ever more tax from a weak, debt-laden economy. There is clearly a debate to be had about the role that the fiscal rules play in all this. My view is that today’s fiscal rules, like their predecessors, can be too easily gamed, and we can debate how to address that, but let us not lose sight of the main point. What matters is whether the underlying fiscal trajectory is credible, and that trajectory is shaped by political choices and political belief. Do you believe the state should be the driving force of growth, or do you trust people and the markets? Should the state encourage people to take greater control of and more responsibility for their lives, or should the state assume ever more responsibility for itself? The answers to these questions will shape our fiscal trajectory and the decisions in next month’s Budget.

The Minister obviously cannot prejudge that Budget, but, that said, there are some simple questions he should be able to answer. First, does he think British business can afford to pay still higher taxes without damaging growth—yes or no? Secondly, the Prime Minister has said he will use “flexibility” within the existing fiscal rules. Can the Minister define what “flexibility” means? Thirdly, what did the Prime Minister mean exactly when he said:

“We’ve got to get beyond this thing of being in hock to the bond markets”?


Finally, what does the Minister think about the current trajectory of our national debt? Is it sustainable—yes or no?

My answer to that question is a firm no. We may not face a debt crisis today, but the horizon is darkening, with weak growth, a record tax burden, sticky inflation, rising welfare dependency and more of our national income consumed by servicing the debts of the past. I do not see this as turning a corner. I see it as proof that, after two years of Labour, with its massive majority, we are on the wrong path and going in a very dangerous direction. We need to change course now, before that thing called the bond market forces us to change, and in a way that will be more painful and more costly.

Let me end by taking us back 50 years to September 1976. Britain had just turned to the IMF for a loan. A few days later, standing at that Dispatch Box, Lord Carrington said something which echoes down the generations. He said that

“you cannot go on spending vast sums of money which you have not got. You cannot go on improving your own standard of life on other people’s money because, sooner or later, they will not lend you any more. … Whether we like it or not—and we do not—and the sooner the better, we are going to have to cut our public expenditure. Of course, it is not going to be nice. Of course, we are all going to be hurt by it, and of course, we shall all have to cut the things we would much rather not cut. Of course, we will dislike it very much. But what other alternatives are there?”—[Official Report, 4/10/1976; col. 953.]

--- Later in debate ---

[Lord Bridges of Headley (Con)]

My Lords, this has been an excellent debate. Let me start by apologising to the noble Lord, Lord Pitt-Watson, for not welcoming him to his place; this is the first time I have debated against him. I very much applaud his emollient and reasonable style. I think those of us on this side of the House think it is a welcome change from what we had before. We can have a proper debate about the issues before us. I also thank all noble Lords who have spoken from all sides of the House and made such incredibly thoughtful contributions, in particular—forgive me for singling them out—those members of the Economic Affairs Committee who served under me. This is rather like the reunion of a pop group: we are playing our golden oldies.

I will speak very briefly. There was so much to cover that I hope noble Lords will forgive me as I am not going to go into depth and detail on all the points that were raised. At the start of the debate, I listed the Ds that we and other nations face: defence; demographics and the ageing population, which the noble Lords, Lord Rooker and Lord Davies, the noble Baronesses, Lady Alexander, and my noble friend Lord Hill picked up; welfare dependency, which others including the noble Lord, Lord Elliott, picked up; and decarbonisation and the green transition, which the noble Lord, Lord Howell, spoke about.

I missed two Ds. The first D is depressing. This debate can be incredibly depressing. But that said—and the noble Baroness, Lady Kramer, makes a good point, as does the Minister—we do have strengths. We absolutely have strengths as a nation, and it is very important that we do not play them down. I do not for a moment want to suggest that this country does not have massive potential but, if we are to unleash that, we have to be honest about the challenges we face.

The Minister said, and I wrote it down, that he thinks this country is on the up. I would love to think so. I hear him, and he obviously makes a very valid point about statistics that have come out suggesting that productivity might be turning the corner. He hopes it is—I noticed that little tweak on the Chancellor saying that it is turning a corner. When I think of a country on the up, very sadly, the things I see going up are our taxes, our debt and our debt interest. Unless we are honest about this, we will not be able to bring the public with us in taking the tough decisions that need to be taken.

The second D I missed is digitalisation and AI. I agree with the Minister that the noble Baroness, Lady Lane-Fox, is absolutely right to talk about this. AI is the revolution sweeping the world, transforming business models and entire economies. It offers immense potential and massive opportunities, but we also have to confront the challenges and risks it poses. One of the risks that we face right now as regards the fiscal outlook—the noble Baroness, Lady Morrissey, will know all about this—is the immense amount of debt that tech companies are issuing around the world. This relies on productivity, profits and this revolution continuing to gather momentum. That in itself poses a risk, and the noble Baroness is absolutely right to highlight it.

This debate, though, confronts a very simple point, which my noble friend Lord Hill and others made. We have to have honesty about the challenges we face. We are in this position because, over the best part of a generation, as a political class we have not had the courage to confront the public with the consequences of the decisions we were taking, not just in the next year but in the year after that and the decade after that. The noble Lord, Lord Burns, alluded to this. During Covid and the energy shock we ran up enormous bills and enormous debts. We were not honest about that.

We now need that honesty; we need to be honest about our solutions based on clear conviction and clear belief. Above all, we have to be honest about the trade-offs that need to be made in response to the challenges we face. As my noble friend Lord Hill said, we cannot try to tell everyone that we can have our cake and eat it; I am very sorry to say that these decisions are going to be painful. But the British public are not stupid. They know that we as a nation are now living beyond our means. They will reward the politicians from whatever side of the House who speak to them with this honesty and have a credible, coherent plan to get us out of the mess we are in. Choices will have to be made. We all know that a country can spend beyond its means for a time. It can borrow, it can tax more and it can hope that growth will come to its rescue, but we know from our history that if Governments wait too long, they risk losing the freedom to make those choices themselves.

I want to end by thinking about the Budget, which a number of noble Lords have referred to. I think that the Budget will be a battle between two cities: the City of London and the City of Westminster. The noble Baroness, Lady Morrissey, made a point very clearly. There, in the City of London down the road, they are looking at nearly £3 trillion of our national debt, our rising debt interest and our shrinking fiscal buffer, and asking whether we as a nation have a credible plan to live within our means. Here, down the Corridor in the other place, in the City of Westminster, are 403 Labour MPs, many demanding that the Government spend more, tax more, borrow more or, at the very least, do not spend less.

Many of those MPs understandably argue that: indeed, it is what brought them into politics. Plaudits to them; they are standing up for their convictions and beliefs. They believe, quite possibly like the Prime Minister, who holds passionate beliefs, that we took the wrong turn in the 1980s. I end with this thought: we ended up making very tough decisions in the 1980s because, during the 1970s, we ducked them. We consistently pushed things down the road. The circumstances today are no doubt very different, but the lesson is not. We still have the freedom to choose and we should use it, because if we do not take the tough decisions now ourselves, eventually others will make them for us.

Motion agreed.

King’s Speech

Lord Bridges of Headley Excerpts

Thursday 14th May 2026 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, it is a very great pleasure to follow the noble Lord’s extremely powerful and searing critique of the Government. To help the Minister in his summing up, let me suggest some parts that he might like to cut. I know he likes always to refer in his speeches to the Liz Truss mini-Budget—I think he has mentioned it about 53 times. He can cut that out entirely. All of us on this side of the House would agree that it was a disaster.

We would agree that the last Government left office with taxes, spending and debt too high, largely—but not entirely—due to Covid and the energy shock. But, of course, the Minister’s Government now hold the record of long-term borrowing costs soaring to the highest level for 28 years, largely thanks to the Government’s self-inflicted chaos. Rather than talking about the previous Government’s faults, which I assume we on this side of the House all agree we are responsible for, I gently suggest that the Minister focuses on what he is responsible for, which is the current state of the economy and where we go from here.

That brings me to the gracious Speech. As a number of my noble friends have said, including my noble friend Lady Penn and, of course, the noble Lord, Lord Robertson, a recurrent theme is the Government’s wish to strengthen our security and resilience. It is an aim we can all agree on. However, the question as regards the economy is, how do we achieve it? The Chancellor has a special word for it: securonomics. In her view, state intervention, regulation and spending more on welfare and the NHS all build economic resilience, and with that resilience comes growth. But as a number of my noble friends have said, especially my noble friend Lady Finn in her excellent opening, evidence suggests that securonomics is delivering completely the reverse: lethargic growth, higher debt and an economy more vulnerable to shocks.

Just consider a few facts. Between 2024-25 and 2029-30, welfare spending will rise by £75 billion to £389 billion. Debt will rise, and with it debt interest spending: from £105 billion in 2024-25, it will hit £134 billion by 2029-30. As the Chancellor likes to remind us, £1 in every £10 the public sector now spends goes on debt interest. That is four times what we spend on nurses. As the noble Lord, Lord Robertson, just pointed out, at a time when war is raging in Europe and there is a stand-off in the Middle East, this makes it even more difficult to increase defence spending. The rise in welfare spending this year alone would be enough to pay for 15 Royal Navy frigates.

So what is securonomics doing? It is making us less secure, both in terms of our economy and our national security. I know the Minister will try to dispute all this when he sums up. He will, I am sure, point to the so-called regulating for growth Bill. I absolutely welcome any measures to ease regulatory burdens on business, and I particularly welcome the concept of strengthening the growth duty. We absolutely have to fundamentally rebalance our risk appetite in this country—we have to encourage more risk-taking, innovation and enterprise—but surely, if the Government were really on the side of businesses and helping get regulations off their back, they would not have implemented the Employment Rights Act, which will increase costs by £5 billion a year, not to mention hitting employers with national insurance. Maybe the Minister can square the circle when he sums up.

Then there is the so-called reset in relations with the EU, which the Chancellor views as

“a strategic imperative for deeper integration between the UK and the EU—in our shared need for greater economic resilience”.

This argument assumes that the EU economy is becoming more resilient and more competitive, and that closer alignment to the EU will, in turn, benefit Britain.

However, as my noble friend Lady Finn pointed out—I want to dwell on this—what is happening in Europe suggests otherwise. Some 18 months ago, in the landmark report that the noble Lord, Lord Liddle, referred to, Mario Draghi warned that Europe would need “to change radically” to meet the economic challenges it faces. But instead of radicalism, many in Europe are concerned that the EU is sinking ever deeper into the economic mire. Why? Its institutions, its culture and the very nature of being a rules-based system means that it is finding it very hard to find a regulatory reverse gear.

At the weekend, the CEO of one of the world’s biggest banks, UBS, pointed to the EU’s record of “no growth” and a “clear divergence” in productivity compared with rival economic powers. This is what he said:

“If it would be over-regulation only in banking, one could probably live with it. We have over-regulation across the board. That’s the real problem. The amount of bureaucracy, the lack of innovation that goes on is a fact”.


Now hear what the CEO of Germany’s BASF, the world’s largest chemical producer, said:

“Europe is losing industrial capacity at a speed we have never seen before. This is … a structural”


trend in “competitiveness”.

Noble Lords may think that this is big business whingeing, but hear this:

“We are on the brink of an existential crisis”.


That was the Prime Minister of Belgium speaking about European competitiveness in February. Then there is this:

“we lack appetite for risk … we are out of step with a shifting world … we are over-regulating”.

That is President Macron. Then there is this:

“The single market was once created to form the most competitive economic area in the world, but instead, we have become the world champion of over-regulation … we must now put a stick in the wheels of this machine in Brussels to put an end to this constant regulation from the European Union’s legislative machine”.


That was Chancellor Merz.

Despite the tough talk from Berlin and Paris, this has yet to yield any results in Brussels. Efforts to make Europe more competitive, productive and innovative are, to put it mildly, spluttering. Before we even get to the price the Government are willing to pay to forge closer relations with Europe, the Minister needs to answer this question: given that the EU’s leaders lament Europe’s lack of competitiveness and growth, and seem unable themselves to do anything about it, why would closer alignment of our economy with the EU benefit the UK, and why would it help build British economic resilience?

This gracious Speech is the latest scene in the tragedy of this Labour Government. When the Government came to office, the Economic Affairs Committee—which the noble Lord, Lord Burns, sat on and which I chaired at the time—warned that tough decisions needed to be taken in that Parliament to put the UK’s finances back on a sustainable path. The Government were given a massive majority to take those tough decisions. But they made the wrong tough decisions, because they believe that economic growth comes from regulation, the state and Whitehall. They are a Government who refuse to confront the brutal reality that we are spending and taxing too much. They believe that we can afford more welfare and less wealth creation. They think that more and more regulation will increase economic security, whereas it increases costs, crushes job creation and makes inflation stickier, which in turn keeps the cost of borrowing high. The Labour Party may change it leader, but it will not change any of these beliefs, so this tragedy will continue.

This gracious Speech will do little to stop our country becoming weaker, more vulnerable, less resilient and less secure—the very opposite of what the Government and all of us want.