Global Britain can be built only on the foundation of sound public finances. That is why, for me, one number above all in the Budget stood out: next year, our debt percentage will start falling. Finally, we can see through to the time when the country will stop borrowing and live within its means again.
Fiscal responsibility is not just an ideological pursuit. Without a prudent approach to borrowing and debt, ordinary people pay the price. They pay it through slower growth, less fiscal resilience and interest rates that begin to climb. Let me start with growth.
As Government borrowing grows, it crowds out the lending available to British businesses to expand and invest. The results of these things around the world are clear. On average, economies with debt exceeding 90% of GDP grow 1 percentage point slower than those where it is between 30% and 90%, and 2 percentage points slower than those where it is below 30%. If it were not for the actions of this Government, our nation’s debt would already have spiralled well beyond 90%. Although a 1 percentage point hit to growth does not sound like a lot, it would be £100 billion in GDP, and £40 billion less to the Treasury’s coffers.
If the argument on lower growth was not enough, higher borrowing has other costs too. Unless we build resilience in public finances, the economy will not have the flexibility to respond to future economic slowdowns. The consequences could be severe. Italy entered its recession with debt at 100% of GDP. Since then, its defence budget has been cut by 12%. Portugal’s debt was 70% of GDP. In the last five years, education has been cut by 16%. And then there is Greece: its debt was 100% of GDP, and the result was a health budget cut in half. In Britain, we are investing record amounts in our schools, our military and our NHS. If we do not get debt under control now, while the economy is growing, we will not able to maintain this record when the going gets tough again.
I turn to interest rates. In modern times, the average 10-year gilt yield has been 5%—four times higher than what we are currently paying to borrow. This situation will not last forever. Also, the more we borrow, the less confidence markets might have in our ability to repay, and the faster those rate rises will come. We already spend more on debt interest than we do on the police and our armed forces combined. As our interest rates rise, that means less for schools, hospitals and welfare. But it is not only the Government who pay when rates
go up—it is ordinary people, with their mortgages, their credit cards and their bank loans. A 1 percentage point hit means £1,000 on mortgages a year.
This is a disciplined Budget delivered by a Chancellor who believes in the importance of fiscal responsibility, and I commend it to the House.
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