LONDON (Reuters) – British finance minister Rishi Sunak warned of the damage higher interest rates could do to the country’s debt mountain as he promised on Monday to “balance the books” following his surge in emergency spending to counter the coronavirus crisis.
Speaking to the annual conference of his Conservative Party, Sunak also gave a public display of loyalty to Prime Minister Boris Johnson whose handling of the coronavirus crisis has come under fire.
Britain is on course for its biggest budget deficit since World War Two, hit by around 200 billion pounds ($259 billion) of emergency spending and an expected slump in tax revenues after the economy shrank by 20% in the second quarter.
Public debt has topped 2 trillion pounds ($2.6 trillion) and Sunak said the government could not count on its borrowing costs in financial markets staying close to their recent record lows.
“Now that we have so much debt, it doesn’t take a lot for suddenly ‘Yikes’ – we have to come up with X billion pounds a year to pay for higher interest,” Sunak said told the conference, which is taking place online.
Sunak said he had “a sacred responsibility to future generations” to fix the public finances in the medium term and he warned of hard choices, hinting at possible future tax increases.
“If instead we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us?”
Sunak, who has been tipped by media as the next prime minister after his decisive action early in the crisis, paid tribute to Johnson – whose leadership has been questioned, including by some within the Conservative Party.
“Yes, it’s been difficult, challenges are part of the job, but on the big calls, in the big moments, Boris Johnson has got it right and we need that leadership,” the 40 year-old former Goldman Sachs analyst said.
He said he would be creative in finding ways to help the world’s sixth-biggest economy recover from its record slump.
“Even if this moment is more difficult than any you have ever faced, even if it feels like there is no hope, I am telling you that there is, and that the overwhelming might of the British state will be placed at your service,” he said.
Sunak said he was open to doing more to help certain industries, such as the entertainment sector, once they were able to reopen.
But he repeated his warning that he would not be able to protect all jobs.
“We are now seeing our economy go through changes as a result of coronavirus that can’t be ignored,” he said.
Sunak is replacing a huge subsidy programme for furloughed workers, which expires on Oct. 31, with a less generous job support programme. Economists expect unemployment to rise sharply in the coming months.
($1 = 0.7722 pounds)
(Additional reporting by Andy Bruce; Writing by William Schomberg; Editing by Guy Faulconbridge, Alex Richardson and Peter Graff)