When are we going to wake up to Labour's debt crisis?

 Wind the clock back barely 9 months ago and Rachel Reeves on the 4th November 2025 was making a speech about the cost of borrowing and how she was going to adjust the fiscal rules to bring it back under control.

She correctly the stated the problem:  "We are spending £1 in every £10 of tax payers money on servicing our debt".

Back then the gilt borrowing rates were hovering around 4.2%.  In barely 9 months Labour has been splashing the cash and the bond markets are growing more concerned about the UK's ability to service, let alone repay, the colossal £3 Trillion debt pile. Because of this gilt yields have crept up to 5.05%.

Now increasing from 4.2% to 5.05% doesn't sound so bad does it?

Well to update her statement

"We are spending £1 in every £8 of tax payers money on servicing our debt"

"We are spending £1.20 in every £10 of tax payers money on servicing our debt"

It's 20% worse than 9 months ago. Come back Liz Truss - all is forgiven in your fabulous budget.....

Forget the "The Tax man cometh". I think it's a case of "The IMF cometh".

If you would like to preserve your wealth before the impending GBP collapse read my previous blog.

It would be unfair to lay the blame totally on Labour for this impending disaster - the conservatives did their bit to grow the debt pile left them by Gordon Brown.  They are certainly guilty of making a bad situation worse however this situation is not limited to the UK.  France's interest payments have also risen by 19% in the last year.  The US is set to grow the cost to service it's debt in the next two years.  Soon the cost to service the debt in the USA will exceed the combined cost of healthcare and defence...

However Britain is the most exposed country in the world to debt servicing.  France can borrow at 4% compared to 5% for the UK.  Japan's colossal debt pile costs as a percentage of GDP less than the UK and at least in Japan you can point to where the money has gone eg super fast Maglev trains. And the USA has the luxury of controlling the world's capital.

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15th Sept 26.

Well the 10 year gilt price continues to rise.  It's hovering around 5.35% up from 5.05% barely a month ago....

That translates into an additional £9 BILLION in interest payments on our collossal £3 TRILLION debt. That's pretty much wiped out the imaginary "fiscal headroom".  It's going to be a challenging budget for Dennis Healey in October.  History looks set to repeat itself.  Except he hasn't been a "Silly Billy" - Rachel & Kier have.

With all the talk of the break-up of the UK, that could be the best thing to happen.

If the debt was allocated on a per capita basis it would be allocated as follows:

Scotland:  £238 Billion

Wales: £137 Billion

N.Ireland: £85 Billion

Leaving the England with £2.54 Trillion.

If it was allocated on GDP then the numbers would be more or less the same but England would pick up more of the debt.

So this would mean Scotland would end up with a debt:GDP of 118%, Wales 150% and N.Ireland 133%

This would mean England would drop from 112% to 108%.

Scotland might be able to survive but Wales and N.Ireland would be technically insolvent.  It's not clear if Eire would be OK absorbing this debt as they have been pretty frugal. Their debt would rise from 33% of GDP to 48%.

Careful what you wish for....

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16th Sept 26

In a not very surprising way, today's inflation numbers were released - rising from 2.9% to 3.1%. This was largely blamed on oil/diesel prices and aviation resulting from the Iran war/conflict. Thankfully this has not [yet] been passed into food inflation but with crop yields significantly down due to the long hot summer food inflation must be coming our way.  October will also see the energy price cap rise - scheduled inflation hidden by tax subsidy.

It will be interesting to see what the Bank of England does tomorrow. Will they hold rates at 3.75% or decide inflation is back and raise rates?

Either way the bond markets could react badly. If interest rates rise it could trigger more bond rate increases. If they do nothing then the bond markets will see inflation as a big issue and with many bonds being inflation linked - rates will rise anyway. 

In the meantime the 10 year gilt bond rates jumped to 5.4% by 8:40am this morning and are now bubbling just under the 5.4% level. So if the 0.05% increase is sticky, it will mean yet another £1.5Billion in debt servicing interest costs (compared to yesterday) which tax payers will have to fund.  Bye Bye fiscal headroom.....

I bet Dennis Healey is sweating.....





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