Rishi Sunak not interested in setting debt-GDP ratio target for UK

Rishi Sunak has said today that his fiscal policy decisions will not be guided by a target debt-GDP ratio and that he would instead look to other indicators to measure the nation’s finances.

The chancellor has spent more than £400bn during Covid-19, including a planned £65bn over the next year to stimulate the economy, pushing the UK’s one-year deficit to its highest point since World War II.

This has pushed the UK’s debt pile to more than £2 trillion, which means it will likely be more than 100 per cent of one-year GDP for years to come.

For comparison, the UK’s debt-GDP ratio reached a high of around 86 per cent in the aftermath of the 2008 recession.

In 2010, former chancellor George Osborne said “once debt reaches more than about 90 per cent of GDP the risks of a large negative impact on long-term growth become highly significant”.

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However, Sunak told parliament’s Treasury Select Committee that there were other indicators he would look at when trying to consolidate the nation’s finances.

“It’s probably right to think more about trajectories of debt levels, building resilience for future shocks and the affordability of that debt,” he said.

Sunak’s Budget included no new rules to show investors how he plans to bring down debt, unlike previous chancellors.

He said the uncertainty about the impact of the pandemic on the economy remained too high to be able to set new rules for now.