Rachel Reeves’ plan to pile billions of pounds more debt on UK taxpayers is the “politics of stupidity” and undermines Britain’s ability to withstand future economic shocks, an expert has suggested.
The Chancellor has said she will change the measure of public debt the Labour Government targets in the Budget on October 30 to allow billions of pounds more investment.
She told reporters on the sidelines of a meeting in Washington DC that the Government will get debt falling as a share of the economy in this parliament, with the added investment freeing up cash to invest in things which would deliver a long-term return.
Economists have estimated that had one measure – targeting public sector net financial liabilities – been available in March, it would have allowed for an extra £50bn in borrowing.
John Bryson, Professor of Enterprise and Economic Geography at the University of Birmingham, pointed out Britain borrowed £121.9bn in the financial year to March, with £102bn of that needed to cover the interest on the Government’s existing borrowing alone.
He cautioned, telling Express.co.uk: “Think about how stupid this is and then reflect on the current political debate that seems to suggest that the Government should borrow more. Really! Adding to UK debt on the basis that the country would be borrowing to invest would reflect the new politics of stupidity.”
Professor Bryson said the best approach for any government to take would be to follow the “best” advice given to households, meaning pay off debt with the highest interest rates first, and ideally avoid borrowing at high rates.
He added: “Part of the UK national debt issue is that interest rates on UK debt have risen and are higher than many other comparator nations and this reflects investor perceptions of comparative risk given the scale of UK national debt.
“It is important to appreciate the scale of UK government debt. By December 2023 this stood at £2,720.8bn. There are two other figures that are much more important in any evaluation of the UK’s national debt.
“In the financial year 2023/24, the UK government borrowed £120bn, or around £1,780 per head of the UK’s population, but also spent £102bn on debt interest.
“Much of the annual fiscal deficit is linked to interest repayments and our politicians are borrowing to cover this interest. This makes no sense.
“The Starmer-Reeves plan is to borrow an additional £50bn. All this will do will increase the amount this country spends on interest.
“It also reduces national resilience as it limits this country’s ability to borrow in response to some future unexpected shock, for example another pandemic.”
Professor Bryson argued it is time for a new form of “competent and responsible governance” in the UK which accepts dramatic productivity improvements are needed in Britain’s public services and that in 2024 borrowing to invest comes with too many additional risks.
He told Express.co.uk Britain needs a government which appreciates it is living “well beyond its means”, noting, however, that there is no need to fully pay off government debt, with some of what is owed dating back many decades.
In July 2015, the government paid off £2.6bn of historical debt, some of which dated back to 1853. It represented the first repayment of undated gilts by any Chancellor in almost 70 years.
Ms Reeves has insisted one of her investment rules means the Government will get debt falling as a proportion of the economy.
She added: “That will make space for increased investment in the fabric of our economy and ensure we don’t see the falls in public sector investment that were planned under the last government.”
Ms Reeves told the BBC that having oversight from the National Audit Office and the Office for Budget Responsibility would give markets confidence that there are rules around the investments the UK can make.
She said if the UK continued on the “path of decline” set out by the Tories, it would “miss out on other opportunities, and other countries would seize them”.