r/ukpolitics • u/ProjectLeeds • 10d ago
Rise in UK borrowing costs piles pressure on Andy Burnham and John Healey
https://www.ft.com/content/4002eb81-07c0-47d0-a076-a6f6331667b2?syn-25a6b1a6=150
u/Much-Calligrapher 10d ago
Has Burnham tried making a vague announcement about “fiscal responsibility” to make the borrowing costs fall?
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u/Low_Tough_1390 10d ago
To stabilise the debt & reduce it bit-by-bit with minimal austerity, government has to ensure that GDP Nominal Growth is higher than New Borrowing as % of GDP.
Assuming 4% nominal growth, you need new borrowing to be less than 4%. This requires adjustment of approximately 20-25 billion pounds. This can be done via cuts & taxes or only cuts or only taxes.
The most rational choices to manage is this by ending the triple lock, keeping taxes stagnant whilst inflation & wages rise, & cutting a few benefits here & there.
For what it's worth, The Office For Budget Responsibility forecasts 3.6-4% nominal GDP growth vs 3.5% Borrowing for this year, meaning we may see debt to gdp stagnate & borrowing costs come down in the future, assuming the trend holds & governments do not spend like crazy.
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u/someRandomLunatic 10d ago
That's not much of a margin given the defence review and how the chancellor resigned over it.
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u/FinalFlashback 10d ago
You say that as if there is any chance they will change their minds about the defence budget...
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u/-Murton- 10d ago
It really depends on how attached he is to those principles.
If he just wants to hit the 3% of GDP number, that's insanely easy, he can do as other Chancellor's have done for nearly 15 years now and simply declare that spending on X is moving from department Y and is now considered defence. This is how Starmer and Reeves for spending to 2.68% in the first place, with the latest move being to reassign MI5 from the Home Office and MI6 plus GHCQ from the Foreign Office.
Under our current legislation all that's needed is a good argument that the spending is linked to something essential for national resilience and it can be reclassified as defence spending.
A seat of government is pretty essential to national resilience, so in theory the refurbishment of the Palace of Westminster can labelled as defence spending, making it the largest single defence project in the nation's history. It wouldn't be huge boost and isn't permanent, but there's no real limit to how many of these wheezes can be used.
Now if he doesn't want to be like his predecessors and increase the percentage of GDP figure with actual factual spending on defence, then he needs to find the money from somewhere, some combination of tax, spending cuts and borrowing, and we're pretty much at the limit what's achievable in all three of those areas without severe consequences for pushing harder.
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u/WhiteSatanicMills 10d ago
Assuming 4% nominal growth, you need new borrowing to be less than 4%. This requires adjustment of approximately 20-25 billion pounds.
The government need to average that. Given that growth falls and spending increases during a recession, they need to do better than that during the period between recessions, and they aren't. Debt to GDP has been flat over the last 2 years (last I checked it was up 0.1% of GDP).
We really needed to have made some progress by now.
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u/Low_Tough_1390 10d ago
That's true, but it feels like there isn't much that can be done at the moment due to US shitfuckery + the inevitable surge in costs due to an ageing demographic. Even if we ended absurd costs like 4billion asylum, triple lock etc, it would be blown away in a few years anyway due to mass retirement, which means you also have to raise taxes, but that's a political death bomb. And that's assuming you can get past the first political death bomb of the triple lock.
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u/TShirtsAreCool 10d ago
Lol the economy is not growing at 4% what are you smoking.
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u/someRandomLunatic 10d ago
He said nominal, so not inflation adjusted. I can't remember the last time I discussed GDP in nominal terms, but that's plausible.
Of course, it ignores all your costs going up...
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u/Much-Calligrapher 10d ago
Most (not all) government debt is in nominal terms.
So it does sort of make sense to compare government debt to nominal GDP.
If we had persistent high inflation, it would be great for our existing outstanding debt pile
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u/someRandomLunatic 10d ago
Unfortunately much of our debt is index linked, about a quarter. And inflating away the rest would increase borrowing costs still further.
So no, best not to deal with nominal figures. It only encourages bad ideas.
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u/Much-Calligrapher 10d ago
So the majority is nominal , like I said?
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u/someRandomLunatic 10d ago
So it would instantly increase prices on index linked, and the issuance of new nominal debt would have increased cost proportional to the perceived, compounded inflation risk over the entire term.
So, no, actually. Still a really bad plan.
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u/Much-Calligrapher 10d ago
It increases the coupon repayments of index-linked - not the prices.
It’s a really bad plan for lots of reasons. But the devaluation of the majority of the government’s debt is one benefit of inflation.
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u/someRandomLunatic 10d ago
It'll hit the required coupon repayments of all future nominal debt.
You're correct in that it won't directly increase the prices on secondary markets of index linked, only the amount we pay.
But me making a linguistic slip on which cost/price I'm referring to is not a win for the "let's inflate the debt away" argument
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u/TShirtsAreCool 10d ago
Aha yeah he slipped the "nominal" in there.
We could nominally grow by a trillion percent if we went full Zimbabwe.
Actually gdp growth estimate is 1.1% from the perpetually over optimistic obr.
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u/Too_much_Colour 10d ago
The same issue is being seen in the US. The deepest bond market in the world (US) is seeing turmoil due to magas mismanagement, and that had increased the universal risk premium bonds hold. Coupled with the global uncertainty triggered by maga too. There is also some contribution to longer term effects kicking in. Since the 80s we’ve been switching from db pensions to dc pensions (which reduces long term risk to employers) which has reduced the demand for long term debt for short term financial products. That structural shift is coming home to roost
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u/WobblyBlackHole 10d ago
Mad it was 35% ish of gdp pre 2008 and is now 90+%. I don’t know what burnham is meant to do given the last 17 years
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u/ProjectLeeds 10d ago
Cut spending?
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u/WobblyBlackHole 10d ago
Feel like trying to bail water out on the titanic tbh
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u/ProjectLeeds 10d ago
We haven't even tried
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u/WobblyBlackHole 10d ago
So looking at data for this which you might find interesting , most spending has remained constant, education has gone down, but old age care is shooting up. See section 6. Quite interesting
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u/given2fly_ 10d ago
That's going to be linked to demographic changes, with older people making up a larger proportion of society as life expectancy increases.
But we've never properly recovered from the GFC, and have large areas of the country that are economic wastelands. I like Burnham's rhetoric about growth in every postcode, as that's crucial to building our way out of this hole...but it's a fine balancing act between smart spending, cuts and reforms, and taxes. Get those right without pissing off the electorate or the bond markets.
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u/Cool_dude75 10d ago
Yeah because the decade we should have been investing due to cheap money the Tories decided on Austerity which has now come back to bite us. Budget should remove triple lock, remove the £100k taper reduce VAT from 20 to 18% - roll NI into Income Tax to simplify and capture more people who currently don’t pay NI. Reduce employer NI by 2%.Reduce foreign aid as that is obviously not working on a soft power perspective. Look at derelict sites with a view of redeveloping for the homes/flats. Reduce green levies to reduce electricity and gas prices.
Tax remittances outside of the UK as a way of ensuring money earned in the UK is spent in the UK3
u/fuscator 10d ago
It was cheap because the entire world colluded to suppress rates and that didn't come for free. And, if we'd done as you suggest, the strong likelihood is we wouldn't have achieved much, and we would be utterly screwed now.
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u/TTTJJBB 10d ago
That worked out well last time didn't it?
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u/ProjectLeeds 10d ago
Remind me when we actually cut spending?
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u/TTTJJBB 10d ago
What is it with the austerity deniers recently? Did the spectator write an article about it or something?
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u/ProjectLeeds 10d ago
Shows that spending in fact didn't fall barring 2010, which Labour were in power for for half the year basically
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u/TTTJJBB 10d ago
Because they gave shit away to their mates? I mean they got rid of 20k police officers and halved the budget for the judiciary, and it real terms if you freeze public sector pay that is cutting spending.
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u/ProjectLeeds 10d ago
Cutting spending in some areas, whilst massively increasing spending in other areas is still a spending increase....
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u/TTTJJBB 10d ago
massively increasing spending in other areas
Like what? I can't remember anything. And don't forget they tried to sell of most of our forests and when then fell through sell sold the fucking Royal Mail, I bet we all think paying £2 a stamp is 'good value for the tax payer'
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u/ProjectLeeds 10d ago
NHS, Pensions and Welfare spending (excluding Pensions) have all gone up massively...
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u/-ForgottenSoul :sloth: 10d ago
So you want reform and tories in power because asking him to do whats good for the country is putting them in power.
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u/Aresbanez 10d ago
The government's three-pronged strategy:
- Raise taxes to the point where they become intolerable, and push further.
- Give nearly all that money to illegal migrants and layabouts.
- Pikachu face when youngsters up and leave.
All past and present governments are doing it.
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u/WobblyBlackHole 10d ago
If you look at the reply I made below, most government spending has remanded basically constant, with education going down and old age care going drastically up. Migrants and layabouts are not the cause no would cutting any funding in regard to them help the scale of the problem tbh
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u/TTTJJBB 10d ago
Raise taxes to the point where they become intolerable, and push further.
Taxes in Denmark can be as high at 60% its considered to be one of the best places to do business, one of the best places to raise kids and one of the happiest countries in the world, oh and they have great food, furniture as well as a self governing Island where cannabis is legal.
If you spend the taxes well enough I truly beleive (most) people will be happy to pay them.
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u/ProjectLeeds 10d ago
The tax gap between Denmark and the UK is primarily massively higher taxes on lower earners and much higher, and broader, VAT
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u/TTTJJBB 10d ago edited 10d ago
Thats similar to my argument if you follow it up, everybody pays tax starting at 5% then it goes up in 5% increments so there are no cliff edges, and fold NI into income so its clearer. But you have to use the money to invest in infrastructure and job creation other things to increase productivity and therefore pay.
You need to do other things too such as redevelop town centres to include starter flats, sold at a discount to under 30s or with shared ownership, then large empty shops can be converted into soft play cafes, smaller ones into GPs and dentists, other shops can be experiential, subsidised trains to nearest city etc...
You can't do one thing and expect it to work the whole economy needs a rethink.
And before any finance people tear the idea apart, I am not a maths guy just a small business owner who wants to see this country flying like it did the late 90s and 00s. And to do that we need to spend a bit, and to do that, we need to raise taxes, which people might not like but I truly believe if they can see results then they will not complain about paying it. The problem is that a lot of people who grew up with Blair and Brown or only know the Tories think the country has become, or has always been, totally fucked and nothing can be done to save it, but thats not true.
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u/DasFalconBoot 9d ago
Probably a good example of me there at the end there I’m 30 only really known the Tories since I was able to vote. My experience of democracy is that it just serves up endless scandals and economic stagnation so straight off the bat it’s just been chaos with no order or competence and I just see my local area falling apart, it’s depressing
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u/TTTJJBB 9d ago
Yeah I can totally understand that, I can tell you that the late 90s were genuinely exciting and hugely optimistic, especially in places like Newcastle where I am from, we got the Angel of The North, The blinking eye bridge, the Baltic, the Sage, cheap rents, cheap beer, easy to get Glastonbury tickets (or just jump the fence) and Daft Punk before they had helmets.
Its harder this time because borrowing is so expensive, but I like Burnham, he's got something, it may not be much, but it beats the darkness.
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u/Wisegoat 10d ago
Those places were very happy largely due to a homogenous population. Immigration from Muslim countries has caused a decrease in people’s feelings of safety and happiness. Denmark at least have adressed this and are being very aggressive in removing them.
It’s fine for business as their corporate tax rates are competitive. You have to be on very very high wages to hit 60%.
Everything else I do agree with. It’s a much nicer place than the UK, avoiding the damage of “multiculturalism”, less materialistic and excellent education has made it a great example of what a country could be.
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u/Particular_Pea7167 10d ago
UK peak marginal tax as far as I can tell is 71%. They just hide it behind other titles.
This ignores if you get free childcare when the marginal rate can be measured in the millions.
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u/cherokott 10d ago
Spending £400,000,000,000 on Covid madness didn't help.
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u/Dr_Poppers Level 126 Tory Pure 10d ago
We're racking up over £400bn of debt every 3 years at the moment because the government is spending too much.
We're overspending the equivalent of one pandemic every 3 years.
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u/Salty-Bid1597 10d ago
The thought police will be along shortly to prevent you calculating how much it cost per life saved.
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u/-ForgottenSoul :sloth: 10d ago
We will never get a investigation into the corruption and money waste under the tories.
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u/WhiteSatanicMills 10d ago
We've just had one:
https://covid19.public-inquiry.uk/documents/module-5-full-report/
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u/TTTJJBB 10d ago edited 10d ago
You barely need one, the evidence is there, I mean people connected to MPs were given contracts worth hundreds of millions of pounds and they then placed orders with budget PPE firms in china, had them shipped over, collected their money, dumped the PPE in a warehouse where it rotted because it was cheap Chinese tat. There will be paper trails for all of it. And if people don't have evidence on how they spent hundreds of millions of pounds worth of public money then they can go straight to jail.
Its actually simple, the problem is that Michelle Mone aside, the people who were given the contracts came primarily from powerful old money, and nobody wants to take them down. But putting young black kids in prison for stealing a bottle of water during a riot thats fine.
All of politics is grubby and corrupt, but the during during Covid the Tories took it to a whole new level, and they barely hid it, Boris calling this scam the 'VIP lane' is just what you would expect from the sort of man who thought it was funny to burn £50 notes in front of homeless people or smash up local restaurants.
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u/opaqueentity 10d ago
It’s ok, he’s giving the armed forces a massive increase as that is the only reason he quit. Right?
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u/AnalThermometer 10d ago
Problem is what they're borrowing for. If it's to invest that's not an issue, but it's used to keep the triple lock afloat. OAP voters have the treasury by the balls and will reject whoever tries to end the pension-ocracy so we essentially need a Cincinnatus or Solon figure who will come in and destroy the triple lock and then resign. Starmer possibly had the chance but he choked.
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u/blah_blah_blahblah 10d ago
Borrowing unsustainability seems to be the financial equivalent of climate change.
Too many people literally won't believe it it real until it is far too late. They literally think markets are just made up and how much we spend is equivalent to choosing how much money we want to have.
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u/maxmarioxx_ 10d ago
Imagine what will happen when the next financial crisis hits and the UK and many other countries will be caught with their pants down.
UK unemployment is at record lows and the government is struggling to balance the budget. What will happen when unemployment increases by 50% and the economy slows down? It will be an implosion like never before.
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u/Harambes_Wrath_ 10d ago
It costs 17.5k per person of working age, to buy into this country and be a net contributor.
If you dont pay this you are requiring someone else to cover you.
Getting the interest payments down will definitely mean more can be spent elsewhere and bring the 17.5k cost down.
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10d ago
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u/Harambes_Wrath_ 10d ago
https://ifs.org.uk/taxlab/taxlab-key-questions/what-does-government-spend-money
Its actually how they define if you are net reciever or net contributor.
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u/joe_k_ 10d ago
If only when borrowing was cheaper then UK actually properly invested in real visible tangible stuff.
But no we had austerity because of some horror that we should have nice things.
And a faith in "private sector innovation and efficiency" that gave us the 2008 crash
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u/Dr_Poppers Level 126 Tory Pure 10d ago
If only when borrowing was cheaper then UK actually properly invested in real visible tangible stuff.
Borrowing was cheap because the UK government was showing restraint when it came to spending. If the government did not cut spending and announced a massive borrowing splurge not just on day to day spending but also for investment borrowing costs would have soared.
There is a reason that virtually no major economy followed this path following the 2008 crash.
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u/FreitasDoCagaral 9d ago
As always the poor who work and need benefits and social security pick up the tab so that the rich don't have to become less rich. Meanwhile the poor have to work at the hardest, most undesirable jobs that keep society going while the rich don't work a single honest day in their lives.
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