Sir Iain Duncan Smith has suggested treating the coronavirus borrowing like ‘wartime debt’ which was allowed to subside over many years. Another cabinet minister has said it is important for the government to look at policies which open up the economy. At the end of the Second World War, government debt was 270 per cent of GDP but by the late 1970s, the figure was below 50 per cent of the GDP.
The former work and pensions secretary said: “What we cannot do is exit from this and enter into a period of clawback.
“That would defeat the objective of growing the economy.
“Growth is going to be critical.”
The senior Tories have warned that Boris Johnson risks continuing the disastrous impact of the crisis if he raises taxes.
This comes as the Office for Budget Responsibility has warned that the pandemic will leave the country with almost £300 billion of debt.
An internal Treasury document has warned the deficit could require an income-tax rise, a public pay freeze and and end to the triple lock on state pensions.
One cabinet minister reportedly said this would be the wrong approach and the borrowing should be repaid over decades like in the war.
They said: “It is completely the wrong approach; it would entrench the downturn.
“Obviously, it’s not for the Bank of England to comment on fiscal policy.
“What I would say is that I think there are choices, and I think those choices will be looked at very seriously.
“I think one of the reasons that the Bank of England obviously acquiring a much larger stock of government debt than if you go back to the financial crisis of 10 or 12 years ago would have been imagined, is that I think what we can do, providing the overall credibility of the framework remains in place, and independence is very important to that point, is that we can help to spread over time the cost of this thing to society.
“And that to me is important. We have choices there and we need to exercise those choices.”
Published at Thu, 14 May 2020 20:42:00 +0000