Chancellor of the Exchequer Rishi Sunak has warned that Britain’s national debt could become unaffordable if there is a sudden rise in interest rates.
Britain has already borrowed billions to keep the economy going during the pandemic crisis.
We are set to borrow £370 billion this year which is more than double the £158 billion deficit at the height of the 2008 financial crisis.
The move will take us close to a debt which is close to 100% of GDP for the first time since the 1960s.
In a radio interview the Chancellor said that the level of debt was sustainable, providing interest rates remained at their ‘exceptionally low’ level.
But he warned of what could happen if interest rates rise significantly, saying: “I think no-one has a perfect crystal ball about which way interest rates and inflation will move. And obviously, we’re much more sensitive to changes in those rates.
“If they moved against us, that’s problematic. So we have to keep an eye on that.
And you know that our economy has taken a medium-term hit from all of this, and that’s what throws our day-to-day borrowing out of whack.
Prime Minister Boris Johnson has previously pledged that the Conservatives will maintain the triple lock tax pledge from their manifesto, meaning they will not raise income tax, VAT or National Insurance – all of which leaves the Chancellor with little room for manoeuvre.
However, the Treasury has drawn up plans to cut pension tax relief for high earners, increase capital gains tax and introduce a digital sales tax for online retailers.
Questioned about the fairness of higher rate pension tax relief the Chancellor said: “I think I would always say judge by actions, and people will see how we, as a government, and I have acted through this crisis.
“We’ve always looked to provide support to the British people, be cognisant of those who are most vulnerable in our society and also do the things to support business and free enterprise, because we understand how important that is to our future prosperity.
Those are all the kind of principles that are important to me, and they will flow through whatever we do.”
Shop for Britain?
Asked if people should go out and ‘shop for Britain’, Mr Sunak said: “Christmas is the time for it.
We’ve obviously made some changes, to allow stores to open for longer to help just space things out.
“But the important thing is these stores have worked really hard.
Everyone will see it up and down their high streets. They’re seeing the efforts that companies have gone to to make sure their premises are safe.”
Finally, asked for his opinion on a ‘deal no deal’ Brexit, he said that though he was hopeful that a Brexit deal would happen he is ‘confident’ the UK can succeed without one.
He said: “I remain very confident about our future as a country and our ability to take advantage of the opportunities that will flow to us.
We can get there
“I think with a spirit of constructive attitude and goodwill on all sides, we can get there. You know, I’m working hard at it and the team are working very hard.
“We’ve been very transparent and consistent throughout this process about what we need. And those asks are things that the EU has largely already agreed with lots of other countries.
So we don’t think we’re asking for things that are unprecedented. Hopefully we can reach a positive conclusion.”