A former top Treasury official has urged ministers to spend taxpayer money wisely as economists warned the country's Covid borrowing spree will last until 2030.
Lord Nicholas Macpherson said “the taps have been opened up to such an extent there is very little focus on the quality of expenditure”, urging the Government to take more care to ensure it is racking up record debts for good reasons.
“We can all debate about what is the correct level of support to demand in the economy, whether it is £200bn, £300bn or £400bn, but it seems to me that the Treasury should be very focused on ensuring that however much money is spent, it should be spent sensibly,” he said.
“It doesn’t matter how much you are spending, we owe it to the taxpayer and future generations to spend it wisely.”
He was speaking as the Treasury came under pressure to reveal the full cost of the lockdown which comes into force on Thursday.
Mel Stride, chair of the Treasury Select Committee, wrote to the Chancellor to ask for “its analysis of the economic impacts and the associated harms of the interventions, referred to in the SAGE minutes, including analysis of the specific lockdown that the Government intends to introduce on 5 November”.
Meanwhile economists warned that the UK’s deficit was unlikely to return to pre-Covid levels until the end of the decade as the cost of tackling the virus and lingering unemployment heaps further strain on the Treasury’s finances.
Sanjay Raja, UK economist at Deutsche Bank, expects a deficit of £375bn this financial year.
He warned the cost of mass testing and distributing a vaccine could add up to £40bn to the deficit in 2021/22, ratcheting up previous borrowing forecasts of £165bn next year.
The mass distribution of any virus would entail “a pretty sizable spending spree”, Mr Raja said, taking next year’s deficit close to 10pc.
Although the beginning of the March lockdown added to borrowing, the deficit in the 2019/20 financial year was just 2.5pc.
Mr Raja said: “It is going to be a long journey in terms of how high these deficits will be and how long it will take to get to pre-virus levels of deficit and debt to GDP ratios. It is not going to happen anytime soon.
“In the middle of the decade on our optimistic forecasts based on one lockdown, we were thinking the deficit would be 4-5pc. By the time we have brought it down it will be close to the end of the decade.”
Paul Dales, chief UK economist at Capital Economics, now forecasts a deficit of £420bn in the current year after the latest shutdown and warned it could remain at £180bn by 2024/25.
He said: “Central banks are probably going to help keep borrowing costs low. It will be the case where we have higher deficits for a number of years rather than trying to get them down.”
The deficit was likely to remain above pre-Covid levels by 2030, he added. “To prevent that they would have to cut spending or raise tax.”