FTI Consulting UK Public Affairs Snapshot: One year on from Sunak’s five pledges: Reducing national debt

The Prime Minister’s commitment to reducing national debt has been the least discussed of his five pledges. It has attracted far less political and media attention compared to inflation, NHS waiting lists, and economic growth.

However, like Sunak’s commitment to stopping the boats – which has been utilised as a lightning rod for popular concerns about immigration – national debt has been identified by Conservative strategists as a way of creating a new dividing line with Labour. We can certainly expect to hear more about it in the coming months.

National debt soared in the wake of the financial crisis, so cutting the deficit became a totemic policy for the 2010 coalition government. In recent years, however, both the deficit and the debt rose again as the Government battled the pandemic and the cost-of-living crisis. This matters for two reasons.

First, the cost of servicing the debt directly affects the amount that the Government can spend on other public services. For reference, the Government currently spends more on servicing Britain’s debt than it does on education.

Second, the sale of gilts to the private sector is a significant barometer of investor confidence in Britain and was a critical factor in the collapse of the Truss administration following the mini-Budget. The greater the borrowing requirement, the bigger the risk.

But of all his pledges, cutting national debt is arguably the hardest for Sunak to deliver, especially in an era of sluggish economic growth. To make significant cuts, you need some combination of higher tax receipts and lower public spending. Neither option is politically attractive. And the fact that the last budget surplus was in 2000/01 – and has only been achieved in five of the past 50 years – shows the scale of the challenge.

So, how has the Prime Minister fared on his third pledge? One year on, Britain’s national debt is still rising. The latest figures this week put national debt at £2.69 trillion, roughly 97.7% of the economy. This is 1.9% higher than in December 2022 and means that it remains at levels not seen since the early 1960s.

The Government has sought to mitigate this by stretching the timeframe of the commitment. Instead of reducing debt now – which would require unpalatable choices about spending cuts – spending and taxation commitments have been set out that show debt falling by 2028-29.

But this numerical creativity has opened up the Government to criticism about pinning a key electoral pledge to something that lends itself to fiscal tricksiness. To give one example, Sunak’s announcement in November that the debt was “falling” was immediately slammed by the chairman of the UK Statistics Authority, who accused the Prime Minister of undermining public trust in how the Government uses data.

Nevertheless, the Conservatives will continue to talk about the national debt for what they see as sound electoral reasons. Namely, hoping to flush out the Labour Party’s spending plans and lay spending cut timebombs for them should they win this year’s General Election.

Central to Labour’s economic offering – and Conservative attacks – is its pledge to invest an additional £28 billion a year in low-carbon infrastructure as part of a “green new deal” for Britain. Conservative strategists identified this commitment as an opportunity to frame Labour as the same old party of fiscal extravagance.

In response, Labour has sought to mitigate its vulnerabilities by watering down the commitment. It now cautions that the £28 billion a year would only be met in the second half of the next Parliament, and it has quietly removed “additional” from the pledge.

To reassure markets and voters, the Shadow Chancellor, Rachel Reeves, has also issued her own fiscal rules to demonstrate Labour’s discipline on the economy. These rules include a similar commitment to reduce national debt and a ban on borrowing for day-to-day spending.

This display of prudence seems to have paid off, with current polling showing the Conservatives trailing the Labour Party on economic competence, an area where they held a 17-point lead in September 2019.

Come the Spring Budget on 6 March, Sunak will hope that the figures show his pledge on national debt being met over the forecast period, perhaps even earlier than planned. Lower-than-expected inflation is likely to lower the cost of servicing this debt and offer a little more fiscal headroom. However, such headroom is likely to be deployed on tax cuts before anything else.

Arguably the biggest dilemma that the Prime Minister has is how to talk about the importance of reducing the national debt without reminding voters of the financial turmoil associated with the Truss administration. The more he talks about fiscal competence, the more he will need to avoid conversations about how and why the Conservative Party lost that reputation in the first place.

As we frequently remind our clients, reputations take years to build but seconds to destroy. Sunak may find that his efforts have come too late and that his party’s fate was sealed during those turbulent weeks in late 2022.

In the next piece in our series, we will review the Prime Minister’s fourth pledge: Cutting NHS waiting lists. To sign up to FTI Consulting’s mailing list to get our snapshots delivered straight to your inbox,  please click the button below.