John Healey has a numbers problem. So does Andy Burnham.
The PM also wants to reform social care, potentially costing £18billion a year, and launch a massive council house building programme. That would cost tens of billions, if it ever happens. Here’s my guess. It won’t. Burnham will struggle to find the workers or land, let alone pay the bill. He also has to find £4.7billion for defence.
Healey has a trick up his sleeve, though. He’s reportedly looking at fiddling the fiscal rules to fund an extra £9billion a year of extra investment by 2031. Healey reckons he can convince bond markets that he’s not playing fast and loose by claiming he’s “borrowing to invest”. In other words, if he borrows money, then uses it to build assets such as council homes, it all balances out nicely. The bond market might fall for it. But even if it does, there’s a massive problem. And it all boils down to just one number.
Britain pays a lot of interest to borrow money. The highest in the G7. That’s because bond investors don’t trust us. Today, 10-year gilt yields have climbed above 5%, widely seen as entering the danger zone. To put this into context, yields peaked at 4.95% under Liz Truss, and she was sunk. Yields could go higher still as the Iran war drives up the oil price and inflation.
Incredibly, £1 in every £12 the government spends goes on servicing the interest on our debts. That’s an extraordinary amount of money disappearing before we pay for the NHS, state pensions, roads and all the rest.
But that’s still not the number that worries me. This one is. Last year, the equivalent of roughly 83.6% of the money the UK government borrowed went on servicing the interest on money it previously borrowed but didn’t pay back. That’s a ridiculous, terrifying percentage. And Healey wants to add still more to our debt pile!
His fiscal fiddle makes no difference. We will still have to pay interest on his extra £9billion. Labour wants to spend even more but this is the underlying truth. We’re funding it with borrowings upon borrowings. And the more we borrow, the less money we have to spend on the things that matter.
As inflation and gilt yields rise, Healey is borrowing at the worst possible time. No wonder the finance experts advising him are keeping their heads down. We’re already in a debt spiral and Healey is putting his foot to the floor. When it all blows up, it will rain financial hellfire on Healey, Burnham and, frankly, all of us.
