National Debt is Rising By £381 Million Every Day
The TPA’s debt clock launched with a bang this week. And it’s hardly a surprise. For the first time in a while, the country, its politicians and its press have been talking about the state of the public finances. Not since the Cameron government has this really been the case. Ever since then our politicians have been guilty of reaching for the magic money tree every time a problem arose. Whether it’s paying for 18 months of aggressive lockdowns, subsidising the nation’s energy costs, pumping money into foreign wars or simply doling out cash everytime a campaign group or backbench MP got a front page of a national newspaper or a question at PMQs, it’s clear that there has been an attitude that the era of cheap money was never going to end. Or at least that they believed they would be long out of power when it did.
Often the government does need to spend money - supporting Ukraine is a noble endeavour that clearly is in our national interest, for example. But assuming the well is bottomless every time that a problem arises has to be made has led to the national debt now sitting at well over £2.5 trillion, ticking up by £4,410 per second, £16 million per hour, and £381 million per day. It’s equal to about £90,000 per household, £68,000 per taxpayer and £37,000 per person.
Of course the national debt has sat in the trillions for many years now, with most choosing to ignore it. Chancellors like to talk about debt falling as a percentage of GDP within a five year forecast period, but as Kate Andrews has pointed out, this is simply a recipe to fudge the figures and put off difficult decisions.
But it’s particularly relevant now for two, closely linked reasons. One is political. Reeves is desperate to get revenge for the devastatingly effective framing that the Conservatives deployed from 2010-onwards about the state of the economy. The difference is that she doesn’t have the open goal handed to Cameron and co in the shape of a letter saying, verbatim, “there is no money left.” Of course it’s more than just revenge. By convincing the country that her predecessors trashed the economy, she’s hoping to reap the rewards of any economic upturn and give herself breathing space for difficult economic decisions.
Which is exactly the point, and brings us to the second reason. She does need to make difficult decisions, extraordinarily difficult decisions. The £20 billion black hole she has identified is in significant part the consequence of spending decisions she has made. And there is no shortage of spending decisions she’s made, from the wealth fund, to GB energy and inflation-busting pay rises for public sector workers. But previously, governments had short term wiggle room on borrowing, more recently due to near-zero interest rates and further back because the deficit was much smaller and the debt much lower.
No longer. Whereas we were spending in the low tens of billions on debt interest for much of the last decade (still a problem, but a much smaller one), debt interest payments are now running at over £100 billion per year and are forecast to remain around that level for some years to come. That is catastrophic. If debt interest was a government department, it would be the fifth biggest. But in return we don’t get a welfare system, a police force or a navy. We don’t even pay down the national debt.
If the Chancellor wants to get serious on the public finances, as her decision on the winter fuel allowance suggested she might be, it wouldn’t just be the black hole this year she should be thinking about- she should also be thinking about how to get control of the national debt. Otherwise it will just continue to climb, thousands of pounds per second, hundreds of millions of pounds per day.