Ahead of the Bank of England’s interest rates decision today
(Thursday), Labour slam Tory economic mismanagement as it emerges
Rishi Sunak’s failure to heed warnings on debt issuance when
Chancellor has left government paying over the odds to service
debt – with UK debt servicing costs rising by £56 billion more
than our competitors, or around £2,000 per UK household.
The numbers were uncovered by the recent Fiscal Risks Report from
the Office for Budget Responsibility.
In October 2020, the Institute for Fiscal Studies warned Sunak
that – given the large sums being borrowed during Covid-19 – the
“costs of financing it just slightly wrong will be large.”
They said that the way to tackle that risk was to sell more long
gilts, in other words: use a longer-term, lower-cost borrowing
approach that would have protected public money more from sudden
spikes in interest rates.
Instead, Sunak opted for a short-term, high-risk approach, which
has left the UK exposed to inflation going up, building up
substantial costs down the line.
Because of the then-Chancellor’s choice to ignore those warnings,
it means that the UK now issues far more index-linked gilts than
other G7 countries, over twice as much as a share of the
second-placed country which is Italy.
Labour are pointing to Tory failures like these, saying that this
kind of fiscal responsibility is what has led to a weakened,
insecure economy and a heightened cost of living crisis.
MP, Labour’s Shadow
Chancellor of the Exchequer, said:
“Every week families feel the hit of Tory economic failure on
their wallets and purses, whether that be through rising food
costs, energy bills or spiking mortgage and rental bills.
“That the Prime Minister was given clear warnings but simply
chose to ignore them, is a true illustration of what little
regard he has for the public finances.
“Yet again, the Tories have left us paying far more, and getting
far less.
“We need to restore some economic responsibility and get our
economy on a more stable path. If I am Chancellor with a Labour
government, that is exactly what I will do.”
Ends
Notes
- In October 2020, the Institute for
Fiscal Studies Green Budget noted that, with Government having to
borrow large amounts to finance the response to Covid-19, “the
costs of financing it just slightly wrong will be large”. The
paper went on to argue that “one way to address this risk is by
selling more long gilts”, which at that time had extremely low
yields of as little as 0.5% a year for 50-year
gilts. https://ifs.org.uk/publications/15082
- But instead the Chancellor decided
to continue ploughing money into shorter-dated and index-linked
gilts. In fact Sunak doubled index-linked gilt issuance between
2020/21 and 2021/22 and then increased it further the year after:
- Breakdown of debt
issuance by maturity
|
|
2020/21
|
2021/22
|
2022/23
|
|
Short
|
35%
|
27%
|
32%
|
|
Medium
|
31%
|
28%
|
23%
|
|
Long
|
28%
|
31%
|
30%
|
|
Index-linked
|
7%
|
14%
|
16%
|
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1062459/DMR_2022-23.pdf
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871876/03032020_DMR_off-sen_v2_FINAL_with_jpegs_v2.pdf
- Because of the then-Chancellor’s
choice to ignore those warnings, it means that the UK now issues
far more index-linked gilts than other G7 countries – over twice
as much as a share of the second-placed country which is Italy
(12%). This has left us exposed to inflation going up.
