‘Central bank of central banks’ warns soaring government debt could trigger global crisis after Starmer’s benefits U-turn
Mounting government debts in Britain and across the West could trigger a global economic crisis, according to the ‘central bank for central banks’.
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The Bank for International Settlements (BIS) has warned that governments “can no longer ignore” the ballooning levels of public debt.
The organisation urged governments to stop borrowing to balance the books, just days after Prime Minister Sir Keir Starmer walked back on a series of controversial welfare reforms to appease rebel MPs.
More than 120 Labour MPs opposed his Government's reforms, as they readied themselves to vote against the Universal Credit and Personal Independence Payment (PIP) Bill.
The concessions mean the bill, which was supposed to shave £5bn off the government’s welfare budget by 2030, will reportedly end up costing the government £3bn, putting further strain on its finances.
The BIS made its warning against a backdrop of slow growth, high costs of borrowing, and a tense geopolitical outlook, saying rising debts could trigger a severe economic crisis, according to the Times.
Read more: Labour has 'moral imperative' to fix 'failing' welfare system, PM declares after benefits U-turn
Agustin Carstens, the BIS chief, said: “High levels of public debt are a significant vulnerability that governments can no longer ignore.”
Asked specifically about Britain’s fiscal situation, Mr Carstens told the newspaper: “It is obvious that the debt [to GDP ratio] in many countries has risen quite fast in recent decades, and this trend cannot continue.
“We are not saying that in any particular country that a fiscal crisis is imminent. But the trend is not the right one.”
Other countries at risk are France, which is wrestling with high costs of borrowing, and the US, where Trump wants to increase America’s deficit to decrease taxes.
Mr Carstens said changes have to be made sooner rather than later, as it will make the impact less painful – which is especially vital to cope with potential crises like the COVID-19 pandemic.
As a share of GDP, Britain’s debt has skyrocketed to 96.4% – up from 32.4% in 2000. Meanwhile, the national debt has risen by a staggering 730.77% since 2000, from £349 billion to £2.9 trillion.
The report published by the BIS pointed to fraying trade ties between nations and unpredictable policies as adding to a weaker growth outlook, while adding that governments have to focus on structural reforms and managing public finances sustainably.
“While high debt can be sustainable when growth is robust and interest rates low, today’s conditions are far less supportive,” Mr Carstens said in a speech.
“Rising interest payments, driven by higher rates and refinancing needs, are putting pressure on fiscal accounts and increasing fiscal sustainability risks. Already, there are signs of weakening investor appetite for government bonds.”
The economist added: “The experience of recent years has been a sharp reminder that price stability is the cornerstone for sustainable growth.
“For households, price stability means safeguarding the value of their hard-earned money, ensuring that what they save today maintains its worth tomorrow. Stable prices create the foundation for families to plan their futures with confidence, businesses to invest and grow, and economies to thrive.
“In an era of heightened uncertainty, preserving this foundation is more important than ever.”