Other countries with debt limits have a similar story to tell. Denmark, for instance, has managed to avoid brinkmanship by simply setting the debt limit at a level far above its stock of debt, and then doubling it when the 2008 crisis raised the risk of needing to borrow more.
Even imposing the rules in international treaties has a mixed track record; the European Union’s Maastricht provision that public debt must stay below 60 per cent of GDP hasn’t actually stopped countries breaching this limit. Indeed, debt across the EU is now an impressive 84 per cent of GDP, with several countries well over 100 per cent.
Germany, one of the successful examples of debt limit laws, is also a good example of why the approach is unlikely to work for Britain. Berlin incorporated a debt brake into its constitution in 2009. Once triggered, this limits borrowing to 0.35 per cent of GDP.
While suspended during the Covid-19 pandemic, it has proved broadly successful in limiting government spending, and recently resulted in the Karlsruhe court blocking a planned €60bn (£51.4bn) project, dealing a heavy blow to the ruling coalition. The result is that the Social Democrats are now looking to reform the rule.
And this, ultimately, is the problem with attempted legal solutions to British government debt. Parliament is supreme, and cannot bind future parliaments. Any law purporting to limit borrowing would be waived aside with the usual passage of bills on a simple majority vote. In order to get borrowing under control, we need a shift in our political culture to one where loading debt onto future generations is seen as unacceptable, and where economic growth is prioritised.
In other words, we need to get back to the way Britain has traditionally managed its debt. As Carl Emmerson, the deputy director for the Institute of Fiscal Studies, puts it, crisis spending takes place “for good reasons – we want to help households, businesses, public services”, but “if we are going to want to keep pushing up debt every time there’s a bad shock, I think we do need to be aiming to get it down when we’re not expecting those bad shocks.” And right now, that isn’t the plan.
In Lord Lamont’s view, this makes it “quite likely that public spending will have to be cut”. For Emmerson, barring a surge in growth: “I wouldn’t be surprised if the first 12 months after the next general election sees a net tax rise.”
The alternative is to continue on an unsustainable path, making our eventual reckoning with reality all the more painful.
