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Second, to budge from the course of living within our means would lead to sharply higher interest rates. Our deficit is more than double Portugal’s; yet our market interest rates are around 3.5 percent, not 8 percent.
If our plan was abandoned, and interest rates increased to 8 percent, it would be a catastrophe for Britain’s homeowners and businesses. It would undoubtedly ruin the recovery.
What’s more, the OBR shows that the direct costs to the taxpayer of higher interest rates are £5.3bn a year by 2015 for every 1 percent rise in rates. If rates rose to 8 percent here, that would cost £24bn.
So the question for those without a plan to deal with the deficit is this: what would you do to pay the £24bn extra that we would have to pay in interest?
This shows that to abandon the plan to deal with the deficit would be a huge risk. It would be to gamble the nation’s finances on the bond markets. We should not play chicken with the bond markets. The safest option for the future of our economy is to stick with the plan – the plan that will rebalance the economy, restore sustainable growth, and rebuild the legacy we will leave to our children.
Matthew Hancock is the Conservative MP for Suffolk West
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