The new Tory leader must solve Britain’s debt crisis

Pound coins
Pound coins

One question will test whether it is Ms Badenoch or Mr Jenrick who has what it takes to be the next Conservative leader. How would a Conservative Government put the UK on a path to sustainable debt?

The UK’s national debt is currently 100% of GDP. Yes, that’s a lot lower than the 250% it hit just after World War Two. But in the decades after 1945, we could manage and reduce our debt thanks largely to the baby boom, falling defence spending, growing world trade, and economic growth – which allowed governments to spend more than they received in revenue without debt rising.

All these trends have now been thrown into reverse. We face several interlinked challenges – the Ds. Decarbonisation – the green transition. Defence – the need to rearm. Demographics – our ageing population. Deglobalisation – the rupturing in world trade. And, of course, Debt itself. Meanwhile, growth is anaemic, and interest rates are no longer abnormally low.

Worse, our debt is more vulnerable to shocks: quantitative easing saw long term debt exchanged for short term debt, and a greater proportion is index linked and held by foreigners.

Depressed? You’re not alone. The House of Lords Economic Affairs Committee recently concluded our debt risks becoming unsustainable. To quote its report: “If we wish to maintain the level and quality of public services and benefits that we have come to expect, we face a choice: taxes will need to rise or the state will need to do less. Addressing this will demand clarity as to the responsibilities and the role of the individual versus that of the state. Muddling through is not an option. If this choice is ducked in this Parliament, the UK risks being on a path to unsustainable debt”.

So where do Ms Badenoch and Mr Jenrick stand on this choice? My hunch is their answer will be about the need to raise growth and productivity. Yet simply chanting “growth” will not deliver it. Nor will coming up with a laundry list of policies designed to appeal to one group of voters or another. This has been what the Conservatives have done for years, and it resulted in a mishmash of policies.

To overcome “the Ds”, we need a coherent set of policies rooted in a coherent world view. Our principles should be applied to problems to create policy.

So this leadership contest must be about principle first, policy second. Doing this will force both candidates to confront an uncomfortable reality: after 14 years of Conservative Government – in which both candidates served – big government is back. Thanks in large part to the magic money tree of quantitative easing, a public consensus has grown that the State can – and should – act and pick up the tab for individuals’ misfortune. As a result regulation, intervention and taxes are slowly suffocating enterprise, innovation and risk taking, all of which power growth.

Are the candidates willing to accept this consensus that was created on their watch, or challenge it so as to raise growth and lower debt? Would they be willing to say “Caveat emptor”, rather than rush to protect consumers? Would they stand to one side if a company fails, rather than promise a government bail out? If they want to cut taxes to support enterprise, what will they cut to balance the books?

Debt – and those other Ds – will shape the political landscape for years. If the Conservative Party is to be a credible alternative government, we need a coherent, principled answer to how a Conservative Government would make debt sustainable.

Ms Badenoch and Mr Jenrick, the floor is yours…


George Bridges recently served as a parliamentary secretary at the Department for Exiting the European Union in 2016 and 2017