Public debt limiting next government’s ability to invest says Lloyds Banking Group’s Charlie Nunn

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1 year ago

June 27, 2024

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The chief executive of Lloyds Banking Group – the UK’s biggest lender – has warned whoever wins the general election that they will not be able to fuel growth by increasing government borrowing.

Charlie Nunn said the UK’s national debt had been forced higher in the last decade and a half due to “massive shocks” such as the global financial crisis, the pandemic, the war in Ukraine and also by some issues specific to the UK economy.

Limits on investment

And, speaking exclusively to Sky News, he said this would limit the next government’s ability to invest.

He said: “We have increased the government debt ratio for the UK. And…we should just accept the government can’t pay its way out of this next stage.

“The US in the last few years has gone up to a… 7.5% government [deficit] to GDP ratio. The US can do that because it’s growing at above 3%, but also it’s [the US dollar] the world’s reserve currency.

“We don’t have those options in the UK – but what we do need is a really clear plan and set of priorities for the UK. And then…we need to find the right way of getting the very material amount of private money, international and domestic, that is excited about investing in the UK to invest alongside government.

The biggest challenge

“I think we can create that positive momentum for investment in jobs and business growth. And then that will feed through into the economy. That has to be the unlock from these three or four very systemic shocks that the UK economy has experienced in the last 16 years.”

Mr Nunn, who has served on both Prime Minister Rishi Sunak’s business council and the British Infrastructure Council launched by the shadow chancellor Rachel Reeves, said this would be the biggest challenge for the next administration.

He added: “When you look at the next few years for the next government, the real issue is how are we going to get investment into the economy – and that investment isn’t going to come from the government. It’s going to have to be crowding in international foreign direct investment, leveraging the banking system to really support customers, investing in their businesses and creating jobs and employment in growth and then supporting other financial institutions and pools of capital like pension funds for that investment.

“So the real focus has to be how do we get some growth going and how do we bring in private money alongside the government to make that difference? And that’s what will give the best outcome for the country, but also the government’s own finances.”

‘Very high’ business sentiment

Mr Nunn, who said business sentiment was “actually very high” at present, said a clear government plan and set of priorities could unlock three things.

He went on: “The first is we need to get more private, both domestically and international investment into the UK to support growth, and that needs to come with some supply-side reforms.

The second is housing. Housing really is an important topic for the UK, from social housing all the way through affordable housing and in the broader housing market. We think you need a 10-year plan to unlock the housing investment that would be needed to really make a difference.

“And then the third thing that we think that could make a difference is focusing on long-term savings and investments, both building financial resilience for businesses and consumers in the UK, but also then how we use those savings, those savings pots, to invest back in the UK economy.

“We think there’s opportunity to do more.”

Investors looking for ‘stability and a plan’

Lloyds is the owner of Halifax, the UK’s biggest mortgage lender, as well as being the UK’s biggest current account provider and one of its biggest players in business banking and credit cards and owner of the life and pensions giant Scottish Widows.

Mr Nunn said that, as chief executive, he met many businesses and was clear what they wanted from the next government.

He went on: “I spend a lot of time with entrepreneurs across the UK, but also big international finance houses, whether they’re pension funds or institutions looking to invest in the UK. The first thing that’s consistent across them is they’re looking for stability and a plan.

“And I think that’s the first thing for a new government, which is to provide that stability and to provide thinking, in some of these areas around infrastructure and housing, which is 10 years thinking not shorter-term thinking. So that’s the first thing they’re looking for.

“The second big theme, which is really consistent, is there are some supply-side issues… which are getting in the way of businesses getting a return on their investments. And obviously, there’s been good discussion around planning around connectivity to the [electricity] grid, around skills. Those are the three topics that businesses always identify.

‘Two to four times longer to get a return on UK investment’

“And what does it mean for investors, whether it’s a business or international investor? Typically, they’ll tell you it takes two to four times longer to get a return on your investment in the UK than it does in other countries of the world. And that’s really where we need to focus.”

Interest rates

Mr Nunn, who in August will mark his third anniversary as chief executive of the black horse bank, said the interest rate cuts from the Bank of England expected later this year would be “beneficial” – but warned homeowners not to expect a return to the ultra-low interest rates seen for most of the last 16 years.

He added: “Of course, the short-term impact of interest rates is going to impact, first of all, the government on the cost of government debt. That will be important. And secondly, it’ll make the cost of borrowing for businesses short term more attractive…that’ll be important.

“In terms of the impact on the broader consumer in the UK, it’ll take longer to feed through. Around mortgages specifically, we’ve just come off a decade where mortgages have been in the 1.5-2.5% range.

“The expectations the market have is that interest rates probably won’t get below 3.5%. And that means mortgages, or the new normal for mortgages, will be in that 3.5-4.5% range, not 1.5-2.5%.

“So there is going to be a higher cost of borrowing in the economy, probably based on what we can see happening at the moment.

“But a reduction in rates will be good for the government’s own capacity to invest and will support the economy and it should be good for business.”

Bank of England proposals

Mr Nunn also questioned proposals for the Bank of England to pay no interest to banks on the reserves they have deposited at the Bank of England – a measure that Reform UK has claimed could raise £40bn that could be used to cut taxes.

The Lloyds chief executive said: “Obviously that will be a political decision and not one that we’ll get directly involved with. The statement from the governor of the Bank of England was an important one in this context…he wouldn’t support it because it would start to undermine monetary policy and specifically how…interest rates feed through into the economy, through the commercial banks, through organisations like Lloyds Banking Group.

“I think that’s a really important consideration. In terms of the quantum of impact, there are various estimates out there, but I think the quantum of impact that’s been talked about is significantly more than I think would be realistic. And so it will be a political choice.

But you really need to look at the integrity of what the Bank of England does and whether or not monetary policy works effectively in the economy.”

Growth through financial regulation

Mr Nunn also said there was an opportunity for a new government to boost the economy through financial regulation, building on the new objectives recently set for financial regulators by the current government, which obliged the Financial Conduct Authority and the Prudential Regulation Authority to enable competitiveness and growth both for the banking sector and the UK economy as a whole.

Stressing he was not calling for a return to the looser regulation seen prior to the financial crisis, he added: “There are choices about how do we help customers take the right level of risk…how do businesses and entrepreneurs take the right level of risk and what can financial services do safely to support that?

“When I look at what the UK is doing relative to other countries, we haven’t had that as a really clear objective and I think there’s more we can do that can untap opportunities for businesses, for families in the UK, over the coming years.”

He said the US and Canada could be a good template for the UK in that respect.

Business

‘Sticking to Labour manifesto pledge costs millions of workers’, Resolution Foundation says

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1 day ago

November 27, 2025

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'Sticking to Labour manifesto pledge costs millions of workers', Resolution Foundation says

Sticking to Labour’s manifesto pledge and freezing income tax thresholds rather than raising income tax has hurt low- and middle-income earners, an influential thinktank has said.

Millions of these workers “would have been better off with their tax rates rising than their thresholds being frozen”, according to the Resolution Foundation’s chief executive, Ruth Curtice.

“Ironically, sticking to her manifesto tax pledge has cost millions of low-to-middle earners”, she said.

Chancellor Rachel Reeves announced in her budget speech that the point at which people start paying higher rates of tax has been held. It means earners are set to be dragged into higher tax bands as they get pay rises.

The chancellor felt unable to raise income tax as the Labour Party pledged not to raise taxes on working people in its election manifesto.

But many are saying that pledge was broken regardless, as the tax burden has increased by £26bn in this budget.

When asked by Sky News whether Ms Reeves would accept she broke the manifesto pledge, she said:

“I do recognise that yesterday I have asked working people to contribute a bit more by freezing those thresholds for a further three years from 2028.”

“I do recognise that that will mean that working people pay a bit more, but I’ve kept that contribution to an absolute minimum”.

Welcome news

The Resolution Foundation thinktank, which aims to raise living standards, welcomed measures designed to support people with the cost of living, such as the removal of the two-child benefit cap, which limited the number of children families could claim benefits for.

The announced reduction in energy bills through the removal of as yet unspecified levies was similarly welcomed.

The chancellor said bills would become £150 cheaper a year, but the foundation said typical energy bills will fall by around £130 annually for the next three years, “though support then fades away”.

More to come

This budget won’t be the last of it, Ms Curtice said, as economic growth forecasts have been downgraded by independent forecasters the Office for Budget Responsibility (OBR), and growth is a “hurdle that remains to be cleared”.

“Until that challenge is taken on, we can expect plenty more bracing budgets,” she added.

It comes despite Ms Reeves saying as far back as last year, there would be no more tax increases.

Ultimately, though, the foundation said, “The great drumbeat of doom that preceded the chancellor’s big day turned out to be over the top: the forecasts came in better than many had feared.”

Business

Budget 2025: The town where voters placed trust in Labour – and some now feel betrayed

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1 day ago

November 27, 2025

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Budget 2025: The town where voters placed trust in Labour - and some now feel betrayed

Hitchin in Hertfordshire does well in the polls.

On the edge of the Chilterns and 30 minutes from central London by train, it’s Britain’s most expensive market town for first-time buyers. It’s also been voted one of the top 10 best, and top 20 happiest, places to live in the country.

Last summer Labour did well in the polls here too. Hitchin’s 35,000 inhabitants, with above average earnings, levels of employment, and higher education, ejected the Conservatives for the first time in more than 50 years.

Money latest: What the budget means for your money

Having swept into affluent southern constituencies, Rachel Reeves is now asking them to help pay for her plans via a combination of increased taxes on earnings and savings.

While her first budget made business bear the brunt of tax rises, the higher earners of Hitchin, and those aspiring to join them, are unapologetically in the sights of the second.

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Kai Walker, 27, runs Vantage Plumbing & Heating, a growing business employing seven engineers, all earning north of £45,000, with ambition to expand further.

He’s disappointed that the VAT threshold was not reduced – “it makes us 20% less competitive than smaller players” – and does not love the prospect of his fiancee paying per-mile to use her EV.

But it’s the freeze on income tax thresholds that will hit him and his employees hardest, inevitably dragging some into the 40% bracket, and taking more from those already there.

“It seems like the same thing year on end,” he says. “Work harder, pay more tax, the thresholds have been frozen again until 2031, so it’s just a case where we see less of our money. Tax the rich has been a thing for a while or, you know, but I still don’t think that it’s fair.

“I think with a lot of us working class, it’s just a case of dealing with the cost. Obviously, we hope for change and lower taxes and stuff, but ultimately it’s a case of we do what we’re told.”

Reeves’s central pitch is that taxes need to rise to reset the public finances, support the NHS, and fund welfare increases she had promised to cut.

In Hitchin’s Market Square it has been heard, but it is strikingly hard to find people who think this budget was for them.

Jamie and Adele Hughes both work, had their first child three weeks ago, and are unconvinced.

“We’re going to be paying more, while other people are going to be getting more money and they’re not going to be working. I don’t think it’s fair,” says Adele.

Jamie adds: “If you’re from a generation where you’re trying to do well for yourself, trying to do things which were once possible for everybody, which are not possible for everybody now, like buying a house, starting a family like we just have, it’s extremely difficult,” says Jamie.

Liz Felstead, managing director of recruitment company Essential Results, fears the increase in the minimum wage will hit young people’s prospects hard.

“It’s disincentivising employers to hire younger people. If you have a choice between someone with five years experience or someone with none, and it’s only £2,000 difference, you are going to choose the experience.”

After five years, the cost of living crisis has not entirely passed Hitchin by. In the market Kim’s World of Toys sells immaculately reconditioned and repackaged toys at a fraction of the price.

Demand belies Hitchin’s reputation. “The way that it was received was a surprise to us I think, particularly because it’s a predominantly affluent area,” says Kim. “We weren’t sure whether that would work but actually the opposite was true. Some of the affluent people are struggling as well as those on lower incomes.”

Customer Joanne Levy, shopping for grandchildren, urges more compassion for those who will benefit from Reeves’s spending plans: “The elderly, they’re struggling, bless them, the sick, people with young children, they are all struggling, even if they’re working they are struggling.”