LABOUR'S RATE TIMEBOMB... AND THE ONE REFORM POLICY BURNHAM SHOULD STEAL: ALEX BRUMMER
Andy Burnham may not want to be in hock to the bond markets, but it is impossible to ignore them at present.
Global concerns about bulging government borrowing, debt across the G7 and inflation are causing conniptions.
Continuing geopolitical ructions and the impact on energy markets have sent ten-year yields on US Treasuries to their highest level for 18 months, and the 30-year is above 5 per cent.
That is a level not visited since 2007 on the eve of the Great Financial Crisis. Japanese yields are the highest in three decades.
Britain’s own budgetary problems in the shape of an unsustainable welfare bill, a bloated public-sector payroll and uncertain energy costs, ahead of the winter, have driven the return on the 30-year long-dated bond to 5.85 per cent.
The cost of government borrowing is not some abstract concept.
At the time of last year’s Budget, the Treasury estimated the government’s interest rate bill at £135billion.
That is far more than the defence budget of £90billion and not far short of the £145billion the UK spends on education. It is not much use, as was the case when Rachel Reeves was Chancellor, to blame high UK bond yields on global conditions.
Certainly, that is a factor, and UK rates often mimic those in the US. It would be nice to think, however, that the new Chancellor John Healey, who once served in Gordon Brown’s Treasury team, is alert to the dead weight of the Government’s interest bill, which remained modest until the bailout of the banks in 2008.
Consumers might ask what government bond yields have to do with them. There is much focus, eight times a year, on the Bank of England’s decision on its key Bank rate.
Yet, as important as that is for consumer credit and business borrowing, it is only part of the picture. Most mortgages these days are fixed for two or five years. Those rates are blended, and gilt yields are an important part of the equation.
Similarly, the interest rate bill for government borrowing, because of the sovereign guarantee (wealthy states don’t go bust), should help set the finest borrowing cost for commerce.
The higher the bond rate, the greater the cost of company loans and the more likely it is to impinge on business investment decisions.
Reform’s plans to savage the welfare bill by £50billion are mostly dismissed by the Institute for Fiscal Studies as twaddle.
But there is one change which makes huge sense.
The party proposes changing the inflation adjustment of welfare payments, currently linked to average earnings, to consumer prices or another measure. That could save £4.8billion a year by the early 2030s and reduce the bill permanently.
That’s a policy which Labour or the Tories could usefully steal.
Pay gap
A VERY senior civil servant once explained to me that government officials deserved gold-plated, final-or-average salary pensions because wages in the public sector trail those in the wealth-creating economy.
Is this still true? Putting to one side the fact that most government pensions are unfunded, which means the cost comes straight out of the Exchequer, the gap seems to be closing remarkably fast.
Moreover, the reported £500,000 payoff for former Cabinet Secretary Chris Wormald, who departed when Keir Starmer was PM, mimics boardroom excess.
Private-sector pay growth in Britain fell to 2.8pc last month, suggesting a weak labour market. In contrast, income for those on the public payroll climbed at more than twice that level.
Equally concerning is that, while those on the payroll of private firms have fallen by 110,000 since the start of the year, the number of state employees has jumped by 50,000. It is very nice that the Labour government is picking up some of the slack.
Consequences for government spending are dire.
Fuel gauge
So much for Labour allegations of cheating petrol stations.
An inspection by the Competition & Markets Authority found ‘no evidence’ of profiteering to take advantage of the Strait of Hormuz crisis.
Fancy that.
2026-08-18T21:20:21Z
