Office for Budget Responsibility chair Richard Hughes has warned MPs that the succession of economic shocks over the past decade has left the nation in a poorer situation to deal with future global emergencies.
Hughes also told members of parliament’s Treasury Select Committee this morning that there had been a “de facto willingness” on the part of ministers to allow the UK’s national debt to continue rising, despite repeated five-year-plan commitments for it to fall.
His comments came in an evidence session with the spending watchdog’s senior leadership team, following last week’s publication of the OBR’s latest Fiscal Risks and Sustainability report.
The report noted that while getting public debt falling as a share of gross domestic product has featured in eight out of nine UK fiscal frameworks published since 2010, underlying debt had risen by 24% of GDP over that period. The OBR said that underlying debt had risen by 60% of GDP over the past 20 years.
Hughes said that since the OBR began producing Fiscal Risks and Sustainability reports in 2017, a lot had happened – and that “most of it has been bad”.
“Covid has delivered a big shock to the government. That raised debt. The war in Ukraine further added to our stock of debt. We’ve seen disappointing economic growth and more recently we’ve seen a very dramatic and rapid rise in interest rates on that much higher stock of debt,” Hughes said.
“So, all of that has put the public finances under much more stress. You can understand why governments have found it much more difficult to deliver the kind of fiscal consolidation that gets debt falling again and rebuilds fiscal space.
“But I guess the thing that is concerning, if you look at report after report that we’ve produced, is that the number of risks have mounted over time – we've had war starting in Europe again, we’ve got a US administration that is putting tariffs on everybody, although we’ve managed to carve out a few exceptions for ourselves – and so global risks are rising and our capacity to absorb them has been shrinking because we’ve ended up spending an awful lot to deal with those risks.”
Hughes said he had “some sympathy” for officials forced to make fiscal policy in a “very volatile environment”.
However, he added that when the UK economy had stabilised from each of the shocks he detailed, there had not been a “determined effort” on the part of government to reduce the level of debt over time.
“There has been in practice a de facto willingness to allow its level to get ratcheted up over time and then committing to getting it to fall on a future date,” Hughes said.
Treasury Committee member John Glen – a former chief secretary to the Treasury and Cabinet Office minister – said the OBR report suggested that debt as a portion of GDP would go up another 5% over the next five years.
He asked Hughes whether it was right to conclude that there would be no change in the increased trajectory for debt without an improvement in economic growth.
“Governments have policy choices as well,” the OBR chair replied. “They don’t have to just hope the economy does better. They can make sure they feel that they’ve got the debt level they feel is secure and prepares them for future shocks.”