Rishi Sunak has warned “hard choices” will need to be made to tackle record levels of national debt incurred during the coronavirus pandemic, saying the government has a “sacred responsibility” to balance the books for future generations.
Using his speech to the Conservative party conference to drop the broadest possible hint that tax rises or spending cuts would be used in response to the Covid-19 crisis, the chancellor suggested the Tories had a moral obligation to cut Britain’s debt pile.
“We will protect the public finances. Over the medium term getting our borrowing and debt back under control,” he said.
The UK’s public finances are on course for a record peacetime deficit this year, as the government spends billions of pounds protecting businesses and households from the economic fallout of the pandemic.
During the first five months of the financial year, the budget deficit – the difference between public spending and income from taxes – has risen to almost £174bn, more than three times the £55.8bn borrowed last year.
The UK’s national debt – the sum total of every budget deficit recorded – has risen to more than £2tn – equivalent to about 102% of gross domestic product (GDP), and the highest level since the 1960s.
However, economists have warned that cutting spending or raising taxes to tackle record debt levels would be counterproductive, because it would risk choking off Britain’s economic recovery, and would damage future income for the exchequer. Others have argued record levels of debt are of little concern because government borrowing costs are historically low, with support from the Bank of England’s multibillion pound quantitative easing bond-buying programme.
In contrast to the chancellor’s comments, the International Monetary Fund said in a report on Monday that governments of advanced economies should not worry about debt levels, and should instead ramp up public investment as the best response to the pandemic.
However, using language reminiscent of the former chancellor George Osborne, who oversaw an austerity drive in response to 2008 financial crisis and the budget deficit caused by the banking crash, Sunak said: “We have a sacred responsibility to future generations to leave the public finances strong.”
Laying down a marker less than two weeks after announcing billions of pounds of fresh government support measures designed to protect jobs through a difficult winter, the chancellor suggested difficult trade-offs would be required in future.
Sunak said the Conservative government would “always balance the books” through its management of the economy, adding: “If instead we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us. I’ve never pretended there is an easy cost free answer. Hard choices are everywhere.”
However, in a conference speech devoid of major policy announcements, he said he was prepared to be “pragmatic” in the short-term and that emergency support was still necessary during the second wave of the pandemic, adding that he would not stop looking for ways to support people and businesses.
