If Rishi Sunak wants to ‘level with people’ he should stop peddling myths about the public finances

After spending last weekend telling the press he wanted to "level with" the public about the state of government finances, Rishi Sunak was keen to present his Budget as a break from austerity, announcing £65bn of recovery spending and tax breaks for business investment.

But the chancellor’s plans still rest on the same dangerous myths that have been debunked by economists on all sides of the political spectrum — that “balancing the books” and keeping the deficit low is the only way to responsibly manage an economy.

Sunak’s belief in this old narrative was laid bare in the “fiscal principles” he set out in his Budget statement, that the state should not, in ordinary times, borrow to pay for public spending, and that “we cannot allow debt to keep rising”.

That’s why his latest plans have been described as a “tale of two budgets”, with spending and tax breaks in the short term, and a fiscal squeeze further down the road.

If Sunak really wants to “level with the public”, he should tell the truth about the public debt - that we don’t need to worry about it.

What actually matters for the health of the economy isn’t the amount of government debt, but the costs of borrowing which have plummeted to historic lows. So much so that the government is set to spend less on debt interest over the coming years than previously forecast.

Interest rates are set to stay low for the foreseeable future, because the Bank of England is helping to fund public spending, and because there is reliable demand for government bonds across the financial system.

Why has the long discredited “deficit myth” been so persistent as a way of describing the economy? Since Thatcher said that “any woman who understands the problems of running a home will be nearer to understanding the problems of running a country”, politicians have relentlessly peddled the false analogy as a smokescreen for attacking the public sector.

In the tradition of George Osborne, who slashed welfare while claiming that we needed to “balance the books” after the financial crisis, these false claims about “tough choices” and “belt-tightening” are sowing the seeds for austerity-by-stealth that would be disastrous for the Covid recovery.

Journalists have also been guilty of stoking fears about the scale of public debt. In November, BBC political correspondent Laura Kuenssberg made the headlines for claiming that the “credit card, the national mortgage” were all “absolutely maxed out”.

In fact, the government can never “max out” its credit card, because the Bank of England can always create new money to help fund public spending. Contrary to Rishi Sunak’s claim last year that the government doesn’t have “it’s own money”, the Bank has created £450bn in the past year alone.

This is debt owed by one part of the state to another, and doesn’t need to be repaid. Take for example the £445bn the Bank of England created between 2009 and 2016 to deal with the last financial crisis. We haven’t paid a penny of it back and we don’t have to; it’s money we owe to ourselves.

After experts railed against Kuenssberg’s “economic illiteracy”, the BBC has been more honest about the fact that there is no hurry to “pay back” the pandemic bill. In fact, fiscal responsibility during a crisis means spending more, not less.

Even the International Monetary Fund — historically a champion of austerity — has advised the government to make use of “accommodative” monetary policy to support spending and warned against premature “fiscal consolidation”, which would cause even deeper scarring across the economy and increase levels of unemployment and private debt. 

The real emergencies we are facing are the results of the government’s political choices - to slash public sector pay, defund local councils, and delay investment in a green future. Across the Atlantic, Biden’s stimulus plans are twice as ambitious as the UK’s, relative to GDP.

Instead, the Budget failed to support the NHS and key workers, or kickstart a green transition. With food bank use skyrocketing and millions falling through the cracks in government support, it’s time for Sunak to level with the public that there is more than enough money for everyone to live a decent life. 

Money is a social creation that helps us organise relationships of care, responsibility and debt. It is a tool to help us pay for the things we need. Not even a household is reducible to a “maxed out” credit card - let alone a national economy.

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Anna Pick is Media and Policy Officer at Positive Money