DOES BORROWING PAY FOR ITSELF?

November 27, 2017 9:25 AM

John McDonnell, the shadow chancellor, recently claimed that further debt incurred under his treasury would “pay for itself”, optimistically assuming that the fiscal multiplier would cover the interest and principal through higher tax receipts. Government borrowing has to be funded and if capital is not attracted domestically (reducing private spending), it has to be attracted from overseas. This increases the exchange rate and reduces exports.[1]

When Labour’s manifesto and other spending commitments announced before and after the 2017 general election are tallied up, billions of taxpayers’ money will be needed to pay for their programme: at least £273 billion would be spent on servicing the debt over the course of the parliament.

Key findings:

  • Labour would spend an additional £100 billion in 2017-18 (on top of the current government’s spending plans) and £329 billion over the course of this parliament when tax rises are included.
  • By 2022-23, debt interest on Labour spending commitments would come to £7.4 billion. Over the six year period, Labour’s extra spending would mean £25 billion in additional debt interest payments.
  • Total debt interest would be £272.5 billion between 2017-18 and 2022-23.
  • Debt interest per household over this period would come to £9,461.

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