The UK’s debt mountain can no longer be ignored

Encouraging economic news is in short supply at present. GDP per capita is clicking into reverse, taxes are on track to reach 70-year highs and productivity has flatlined. But it is the UK’s spiralling debt which ought to keep us up at night. The outgoing head of the UK’s Debt Management Office (DMO), Sir Robert Stheeman, has this week warned that a borrowing binge would risk a market backlash – an intervention rooted in concerns that political parties may make grand pledges as voters head to the polls, ones which are divorced from our harsh economic reality.

Not during a single year of Sir Robert’s two decades as chief executive of the DMO, an executive agency of HM Treasury, has this country balanced the books. In his first year in the job, the entire value of the gilt portfolio was

£300 billion. By last year, it had swelled to roughly £2.5 trillion. Government debt is now equivalent to roughly 97.8 per cent of GDP, with the Office for Budget Responsibility forecasting it will rise further this year. Servicing this debt costs more than the Government spends on education, with recent warnings the interest bill could soon grow faster than the economy.

The size of the public sector is a significant problem. Government spending was 45 per cent of GDP in 2022-23, and there is no sign of it easing. Tens of billions of pounds were spent subsidising bills through the Energy Price Guarantee when targeted welfare and tax cuts would have been far more appropriate mechanisms to cushion the poorest from the impact of the cost of living crisis. At the heart of Labour’s “securonomics” agenda is a wincingly expensive “Green Prosperity Plan”. Our healthcare service has more funding and staff than pre-pandemic, yet this has not been reflected in the number of patients it is able to treat. There is little appetite for reform, but plenty for increasing headcount further: by the mid-2030s, one in 11 workers could be on the NHS payroll. There are few areas of public life in which the state will not now interfere, funded by taxes imposed either on this generation or future ones.

This country has faced serious national debt problems in the past. Spending during the Napoleonic wars led to a debt-to-income ratio of over 200 per cent. After the two world wars, it reached about 250 per cent. But this should not give cause for complacency: the underlying factors which have allowed the nation to recover in the past look very weak today.

For 15 years, we have masked the true scale of our economic problems with money-printing and cheap credit. The LDIs crisis under Liz Truss’s premiership taught Britain that there is a limit to what the markets will tolerate. There is a risk this is a lesson politicians are failing to learn.