London October 12 2022: Britain’s national debt was on track to fall to its lowest level since the financial crisis in 2009 under former Chancellor of the Exchequer Rishi Sunak, according to the International Monetary Fund.
The calculations don’t take account of the tax cuts and spending commitments made by Prime Minister Liz Truss and her chancellor, Kwasi Kwarteng, since they took office in September and roiled financial markets with a series of unfunded pledges.
Figures published in the fund’s Fiscal Monitor show UK gross debt falling from 87% of GDP this year to 68% in 2027, about 20 percentage points lower than any other Group of Seven industrial economy other than Germany. The UK currently has the second lowest debt to GDP ratio of the G-7 and would have remained the second lowest in 2027 under the earlier plans.
The steep fall in the debt projection highlights the sudden change in direction for the public finances under Kwarteng. He announced £45 billion of tax giveaways in his September mini-budget and an energy support package costing £60 billion for just six months.
Fears that the fiscal loosening would spur on inflation and put the debt on an upward spiral triggered a run on the pound and a government bond sell off. The Bank of England was forced to intervene to settle markets. The Institute for Fiscal Studies said in its Green Budget that UK debt would rise to 95% of GDP under Kwarteng’s plans.
The IMF said its forecasts were produced before the mini-budget and assumed some degree of fiscal tightening to be consistent with Sunak’s rule that debt would be falling as a share of GDP within three years. It declined to provide an estimate of the debt position after the mini-budget, saying it would need to see the full plan.
Kwarteng is planning spending cuts or tax rises to put the public finances on a more sustainable footing, to be published on Oct 31. He is reported to be considering cuts to benefits and the aid budget, having scrapped his plan to cut income tax on the richest earners.
The IMF figures overstate the speed at which debt would have fallen under Sunak. In his leadership campaign, Sunak committed to cut income tax by 3 percentage points by 2029, promised a reduction in energy levies and pledged further support for household energy bills costing about £10 billion.
