Former Bank of England Governor Mervyn King has warned that the UK should be “very concerned” about the mounting level of the national debt. Lord King said the country is “not in a comfortable position” following the financial crisis and the pandemic.
Borrowing to cope with those emergencies sent the national debt soaring from £575bn, or 36% of GDP, in 2007, to £2.9tn, or 96% of GDP, today, despite Conservative and Labour promises to bring debt down. As a result, there is little room to deal with any future crisis.
“If there were to be another crisis, governments would cope with it, but it would come at the cost of a much larger rise in the ratio of debt to GDP, and we would see interest rates go up to offset that,” Lord King told the Lords Financial Services Regulation Committee.
Higher borrowing costs would in turn worsen the Government’s financial black hole, as it is forced to pay more interest on its debts, in a vicious spiral.
“Some people have drawn comfort from the fact the rise in long-term interest rates has been true across the G7, and it has – but that simply means we’re all in the same mess rather than just the UK being in it,” said Lord King.
“It is a real challenge.”
Chancellor Rachel Reeves is already seeking ways to restore the finances, in part because recent increases in borrowing costs have forced her plans off course. Reeves conceded that tax raids do affect growth, telling the British Private Equity and Venture Capital Association’s annual Summit that “one of the reasons why taxes have risen to such a high level is because there’s been such poor growth and such low levels of investment and such a deterioration in our productivity performance.”
