Politicians will need to take into account the “reality of the market” ahead of a general election expected later this year, the outgoing head of the UK’s Debt Management Office cautioned.
In an interview with the Financial Times, Robert Stheeman warned that a borrowing binge would risk a market backlash.
“Don’t kid yourself in thinking that you can develop policy in a vacuum without taking the market into account,” Stheeman said
Shteeman was head of the debt issuing body during Liz Truss’s brief tenure as Prime Minister, when £45bn in unfunded tax cuts sent the bond market into meltdown.
Truss was forced to resign and the vast majority of her policies were unwound, but with UK debt still at historically high levels, markets remain jittery.
The latest figures put public sector debt at around 97.5 per cent of UK GDP, a level last seen in the early 1960s.
“In a world in which we have debt to sell, policymaking cannot be divorced from the reality of the market,” Stheeman warned.
The comments come in an election year in which both parties will announce policies which they hope will break the UK’s sluggish rate of growth.
In the Autumn Statement, the Conservatives announced tax cuts for households and businesses worth around £20bn. More is expected in March’s Spring Budget.
Labour meanwhile has watered down the so-called Green Prosperity Plan as interest rates have risen.
The plan would have seen the party spend £28bn a year on green investments, but now commits a Labour government to an extra £20bn in borrowing by the end of the next parliament.
Stheeman argued neither party should push back against the markets if they react badly to policies. “Markets are very human things, don’t rail against the market because all you are doing is railing against other people’s opinions,” he said.
