£1tn debt rise ‘leaves UK at risk of turning into Venezuela’
The ballooning national debt poses a major threat to the economy, a Bank of england official warned last night.
Britain would struggle to recover from another crisis because of the parlous state of the nation’s books said Richard Sharp, a member of the central Bank’s financial policy committee.
he warned that borrowing more could see Britain suffer a collapse similar to that experienced by socialist Venezuela.
In a hard-hitting speech at University College London, he pointed out that successive governments have borrowed more than £1trillion since the last financial crisis. That has pushed the national debt towards £1.8trillion – or 87 per cent of national income – leaving the country with little room for manoeuvre when the next disaster strikes.
Mr Sharp explained that failure to be vigilant could even see Britain follow a similar path to Venezuela, which had a top-notch AAA credit rating more than 30 years ago but is now in default.
As a result, families are struggling to get basic medicines and food.
The South American country was once hailed by Labour leader Jeremy Corbyn as a Left-wing paradise.
But nearly three-quarters of Venezuelans have lost weight in the last year because of food shortages – shedding almost a stone and a half on average. The infant mortality rate rose 30 per cent last year. Mr Sharp’s warning comes as Chancellor Philip hammond faces growing pressure to relax austerity following seven years of progress towards balancing the books.
he launched a £25billion spending spree in last week’s Budget.
Meanwhile, the Labour Party wants to borrow another £250billion as part of its plot to drag Britain back to socialism.
Mr Sharp, who spent 23 years working for Goldman Sachs before joining the Bank of england, said: ‘I have concerns about the threat to our financial stability arising from our national indebtedness.
‘A highly indebted government has less capacity to react to crises. We cannot assume that further shocks do not materialise, and evidence demonstrates that fiscal space is a vital national resource to have available to counteract such a shock. Reducing fiscal space, therefore, means financial stability is harder to achieve. Our national resilience is fragile and as such our margin for error is small. We have a debt level which gives us limited capacity for national manoeuvre.’
Mr Sharp warned that interest payments on the debt could spiral from around £40billion a year to as much as £100billion if borrowing costs return to
‘It pays to be paranoid’
pre-crisis levels – far more than the Government spends on roads, schools, houses and hospitals.
he added that countries that borrow internationally, such as Britain, ‘are particularly exposed to the risk of a loss of financial credibility and a market-driven spiral into debt unsustainability’.
And he said attempts by the Government to borrow more to boost the economy in the event of a downturn could prove ineffective. Businesses and households would simply cut back spending ‘in anticipation of future tax rises’ to pay for largesse by the state, he said. ‘The pri- vate sector is more likely to cut consumption and investment the more worried it is about high government debt levels,’ added Mr Sharp.
he added that he had seen what happens when a country loses its senses and embarks on a reckless debt binge.
‘As a financial practitioner for well over 30 years, uncertainty is no surprise to me – for example, when I started in finance Venezuela [had] AAA credit [rating],’ the economist said.
‘Venezuela is now in default.’ It is the latest in a rising cacophony of warnings about Britain’s debt time-bomb. The independent Office for Budget Responsibility warned in July that bowing to ‘austerity fatigue’ could put the country on the road to financial ruin.
It said loosening the purse strings ‘would only add to the longer-term challenges’ facing the UK. The respected Institute for Fiscal Studies think-tank has warned that debts will not return to pre-crisis levels of around 40 per cent of GDP before the 2060s.
Mr Sharp said it was important to be constantly aware of the risks from debt and financial crises.
he cited risk expert Nicholas Taleb, who visited the Bank last year. ‘earlier in this speech I said it paid to be vigilant,’ he said. ‘Taleb commented that, indeed, “it pays to be paranoid”.’