Sovereign Debt

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 17 January 2017.

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Photo of Chris Davies Chris Davies Conservative, Brecon and Radnorshire 12:00, 17 January 2017

What steps his Department is taking to reduce sovereign debt.

Photo of Philip Hammond Philip Hammond The Chancellor of the Exchequer

The only way to reduce debt sustainably is to return the public finances to balance. Our new fiscal rules commit us to doing that as soon as possible in the next Parliament. We have already reduced borrowing as a share of GDP by almost two thirds from the post-war peak that we inherited in 2010, and we are forecast to borrow less than 1% of GDP by the end of this Parliament.

Photo of Chris Davies Chris Davies Conservative, Brecon and Radnorshire

I thank the Chancellor for his answer. Government debt interest sits at around 5% of overall Government spending, which is equivalent to nearly 20% of the overall health budget. Would my right hon. Friend consider paying down our debt more swiftly to relieve the strain that debt interest is putting on the public finances?

Photo of Philip Hammond Philip Hammond The Chancellor of the Exchequer

We are committed to reducing debt while at the same prioritising investment in high-value infrastructure that will enhance our productivity. Of course, the only way we can pay down debt is to generate a current surplus, which means more tax or less spending. The trajectory that I set out at the autumn statement is the right one for this country in the circumstances. I intend to stick to that and ensure that we get the public finances back into balance as early as possible in the next Parliament.

Photo of Alison McGovern Alison McGovern Chair, Speaker's Advisory Committee on Works of Art, Chair, Speaker's Advisory Committee on Works of Art

But the total of UK Government debt owned by foreign investors now sums more than half a trillion pounds for the first time ever. As the value of sterling tumbles, what assessment has the Chancellor made of the risk of the cost of servicing our debt rising unsustainably?

Photo of Philip Hammond Philip Hammond The Chancellor of the Exchequer

The way it works is that the pricing of new Government debt is determined by the auctions around new issuance, which, clearly, is brought at current exchange rates by foreign purchasers of debt. The hon. Lady makes a good and important point: currency volatility, rather than the actual level of the currency, does introduce an additional dimension for foreign purchasers of UK Government debt. I have said many times that the process that we are embarked on of negotiating our exit from the European Union creates some uncertainty, some of which we have seen manifesting itself in the currency markets. The sooner we can get through that period of uncertainty and have clarity about our future relationships with the European Union, the better for markets, business and people in this country. The purpose of the speech that the Prime Minister is making right now is to start to give some clarity to the situation.