Britain’s national debt will continue to climb over the next five years, putting at risk one of Rishi Sunak’s key pledges to voters, according to an International Monetary Fund study.
The IMF said the cost of subsidies to consumers faced with rocketing energy bills meant repair of the UK’s Covid-battered public finances was taking longer than in other developed countries.
In its Fiscal Monitor – one of its three flagship reports – the Washington-based body said it expected overall UK national debt to keep rising over the next five years. Public debt is forecast to increase steadily from 103% of the economy’s annual output, or gross domestic product (GDP), in 2022 to 113% by 2028.
Net debt – which strips out financial assets owned by the government – is also forecast to rise, from just under 92% of GDP in 2022 to just over 101% in 2027 and 2028.
Sunak promised to reduce debt as a share of GDP over an unspecified period earlier this year as he laid out five targets by which voters should judge his government. The others relate to inflation, growth, NHS waiting lists and stopping small boat crossings.
The UK’s independent forecaster the Office for Budget Responsibility – which uses a slightly different methodology to the IMF – said Sunak was just about on course to get debt on a downward path within five years. In its budget forecast last month, the OBR said the national debt would peak at just under 95% of GDP in 2026-27 and fall by 0.2 percentage points the following year.
At a press conference, Vitor Gaspar, director of the IMF’s fiscal affairs division, said the figures in the fiscal monitor were not strictly comparable with the OBR’s and there was a chance the government would “narrowly” meet its debt objective.
“We have not had the chance to go through the details (of the OBR’s forecast) but we are actually quite impressed by the way the budgetary process is working in the UK.”
Government debt has grown because spending soared during the pandemic to support consumers and businesses, and has subsequently been increased by payments to offset the impact of Russia’s invasion of Ukraine on energy bills.
The IMF said the UK’s budget deficit – the gap between spending and tax receipts – peaked at 13% of GDP in 2020 and would still be 3.7% of GDP by 2028. The primary budget deficit – which excludes debt interest payments – is expected to come down from 12% to 1.9% of GDP over the same period.
The IMF said the underlying financial position of advanced countries adjusted to take account of the economic cycle had improved in 2022 by 3.4 percentage points on average but there were important differences between countries.
“The improvements in the cyclically adjusted primary balance in the euro area and the United Kingdom were smaller at 0.5 and 1.8 percentage points each, because further support measures were taken in response to a deterioration of the terms of trade stemming from Russia’s invasion of Ukraine,” the IMF said.
