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Keir Starmer is not very fond of the House of Lords and plans to reduce its size.
However, he will find it hard to ignore a report from the Economic Affairs Committee, which is packed with former senior Treasury and Finance officials.
The findings on national debt are highly relevant ahead of Rachel Reeves’ first budget and efforts to blame the Conservatives for rotten public finances and an alleged £22bn black hole.
Of the red, some £9.4bn is due to public sector pay deals agreed by Labour. The figures, compiled by the Treasury, are not independently backed by the Office for Budget Responsibility (OBR).
It will be hard for Kirchner Starmer to ignore a report from the economic affairs committee that is packed with former senior Treasury and Finance officials.
The chairman of the House of Lords’ economics committee, Lord Bridges, and his colleagues are clear: Britain’s national debt is no worse than that of its peers, at around 88.8 per cent of output (excluding the costs of the Bank of England’s quantitative easing).
In fact, the UK is in a much better position than most of the rich G7 countries, with the exception of Germany. The scale of the debt is not a consequence of Liz Truss’s tantrum.
It is the cumulative result of three world-class shocks: the Great Financial Crisis (a legacy of the Labour Party), Covid-19 and Russia’s war on Ukraine.
That said, the debt pile is too high. The concern is that if another catastrophe were to occur, either internal or beyond Britain’s control, the buffers could prove insufficient to prevent a funding crisis.
The vulnerability is partly the result of poor decision-making by the Treasury. The UK has saddled itself with a higher proportion of index-linked debt than most of its competitors.
During the cost of living challenge of 2021-23, servicing costs soared. Debt levels also rose due to the HM Treasury’s foolish decision to take on the Bank of England’s liabilities, unlike almost every other advanced nation.
So what should be done? Clearly, a more orderly approach to public finances is needed, with regular spending reviews audited by the OBR.
The conservative approach of requiring debt to fall as a share of GDP in the final, fifth, year of a forecast is seen as insufficiently robust.
Reeves could console himself with a recommendation that taxes be raised or the size of the state reduced to deal with the deficit.
The TUC, meeting in Brighton, will not back the latter.
Reeves may not be too happy with the Lords’ rejection of his suggestion that only the current budget should be brought close to balance and that investment spending could be excluded.
The report argues that separating the two is complicated, so there should be one overarching goal.
UK decision-makers have made two serious mistakes in moving away from the principle of long-term borrowing funding.
The Bank of England’s excessive use of bond purchases has shortened the debt repayment schedule. There has been too much reliance on index-linked bonds.
These are technical errors, not political ones. That does not prevent Reeves and his acolytes from blaming the conservatives.
Trench warfare
Burberry investors would have preferred Barclays analysts to stay away from China. The deterioration of the Beijing-led economy is hitting spending on luxury goods hard.
Burberry, a group in transition, is struggling to match the fashion standards of its former boss, designer Christopher Bailey. It has lost more than 70 percent of its value in the past 12 months and has been kicked out of the FTSE 100 index.
The danger is that the further the shares fall towards 500p, the more likely they are to attract bidders looking for a bargain.
Buyers could come from two possible sources: the biggest players in the luxury goods sector doubling down on big brands; or there could be cash-rich private equity bids.
Both should be rejected by a board headed by Tesco chairman Gerry Murphy. Losing Britain’s best-known luxury brand to a foreign rival would be a betrayal for a brand that traces its trench coat heritage back to 1856 and is so identifiably British.
Private equity management, as we have seen with other retailers, should not be an option.
The board and new CEO Joshua Schulman need to prepare.
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