£2.8 trillion and rising: Why Labour cannot ignore UK’s eye-watering national debt

It was trailed as a “big Budget” and it more than lived up to its billing. Labour Chancellor Rachel Reeves put a lot of work into managing expectations, or “rolling the pitch” in the jargon du jour. Perhaps this is akin to “kite flying”, but with less scope for changing course. It is easier to pull in a kite than unroll a pitch. 

So when Reeves made the surprise announcement in her Budget last week that fuel duty would stay frozen most people were pleasantly surprised. They might also have quietly rejoiced when she committed to ending fiscal drag on income tax thresholds – albeit in three years’ time – and almost welcomed changes to capital gains tax and inheritance tax that were less punitive than had been feared.

Chancellor Rachel Reeves poses outside 11 Downing Street with her ministerial red box before delivering her Budget in the House of Commons | Lucy North/PA Wire

But the devil is always in the detail. Central to the aforementioned pitch rolling was the contention – strenuously denied by the Tories – that there was a £22 billion “black hole” in the nation’s finances. Labour, we were invited to believe, had no inkling of this when they made manifesto commitments ahead of July’s general election.

Whether this is true, partly true or completely false, it gave Sir Keir Starmer and his party cover for breaking election promises and hiking the nation’s already eye-watering tax burden by £40bn. One election pledge rolled over by Reeves as she prepared her pitch was changing fiscal rules that were in place since Gordon Brown’s time in Number 11. By redefining assets and liabilities, Reeves freed the government up to borrow an extra £50bn.

On taxation, the sucker punch was on employers’ National Insurance (NI) contributions, which were hiked to bring in an extra £25bn. The rate was raised and the threshold at which employers must pay contributions was almost halved.

Labour pushed a narrative that this was a Budget for “working people”, who might somehow escape the effects of a £40bn tax grab. But the raid on employers’ NI will be felt across the economy and by businesses big and small. And the impact will also be felt among employees through slower wage growth and lower staffing levels. Many businesses will pass the extra costs on to consumers and find their ability to invest and grow hampered. Others will go to the wall.

Day-to-day government spending is to increase by 4.3 per cent this year. Perhaps pre-empting any accusations of profligacy, Reeves announced the creation of a Value for Money ‘tsar’. David Goldstone, the newly-appointed chairman of the Office for Value for Money, will earn £950 a day for an average commitment of one day a week. If he were full-time, his salary would be worth £250,000, significantly more than the Prime Minister’s. Many question whether this represents value for money.

In Scotland, we’re blessed with two governments and Holyrood is to receive its most generous block grant since devolution, up by £3.6bn. If anything, MSPs seem even more keen on tsars, quangos, commissioners, taskforces and such like than their counterparts at Westminster.

There are seven independent commissioners in Scotland, with approval granted for an eighth. A further six have been proposed or are being actively considered. Last week, members of Holyrood’s Finance Committee voted for a moratorium on creating any more, pending the outcome of a “root-and-branch review”.

Even Green MSP Maggie Chapman, who once described the prioritisation of economic growth as “an obsession with counting”, sees a problem, pointing out that in 2003 Scotland’s commissioner budget was £1.3 million but is now £18.2m.

Labour’s Sarah Boyack cautioned against the moratorium, however, as she called for a wellbeing and sustainable development commissioner. Meanwhile Tory MSP Jeremy Balfour proposed a disability commissioner.

For decades, politicians seem to have been obsessed, convinced the solution to any problem, perceived or otherwise, is to spend higher and higher levels of public money. Meanwhile the state has become ever more flabby, inefficient and expensive.

Whatever the views of Chapman and her fellow travellers, growth must be the priority. The prosperity, health and longevity we enjoy today is the result of the growth we have seen over the past 200 years.

It is nonsensical to resent growth on the grounds that the wealthy could accrue more wealth. Economic growth is why we can now hope to live beyond the age of 30. It is about huge improvements in the general lot of humanity around the world. 

The Chancellor has gambled that she can tax, spend and borrow her way to growth. But growth forecasts have gone down as taxes, spending and borrowing are going up. Paul Johnson, director of the Institute for Fiscal Studies think tank, warned in the aftermath of last week’s Budget that Reeves may have to come back for “another round of tax rises in a couple of years’ time – unless she gets lucky on growth”. 

Getting lucky on growth feels like a long shot right now so the prospect of a national decline doom loop looms large. The tax burden is at its highest since the 1940s and the fallout of the Second World War. The national debt is almost 100 per cent of GDP, standing at a record £2.8 trillion and rising.

We now spend around £90bn a year servicing debt – far more than we do on defence, for example. With energy prices four or five times higher than in the US, production and manufacturing continue to decline at pace. 

“Made in Britain” is becoming a rare product label and will get rarer still under the watch of Ed Miliband, the Energy Secretary and Chief Druid of the net zero-inspired Anti-Industrial Revolution. Starmer’s government is just getting started but it is already unpopular and could well become even more so. 

At some point, politics will catch up with economic reality. We cannot blindly continue to keep faith that we can tax, spend and borrow our way to better times in the face of ever-mounting evidence to the contrary.