𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Parliament returns today. Tomorrow, new PM Andy Burnham faces his first PMQs. He spent the summer swanning around the country, wooing the nation with big spending pledges. As political honeymoons go, this one has been pretty chill. That’s about to change. As I wrote yesterday, summer is over and the knives are coming out. Chancellor John Healey has to deliver his first Budget on October 28, less than two months away. He’s already struggling to make the sums add up.

Predecessor Rachel Reeves had the fun part, or what passes for fun in Labour circles, by hiking taxes and spending as much as she dared in a game of fiscal Buckaroo. Anything Healey piles on top risks triggering that spring-loaded mule. He can’t even find new money to spend on defence, which he considered a resignation issue under Keir Starmer. Now something has happened that will make his job even harder.

Remember when gilt yields rocketed to 4.6% under Liz Truss? The market bucked and sent Calamity Truss flying out of Number 10. Ten-year gilt yields have just hit 5.176%, and they’re still clicking up as I write this. Thirty 30-year yields are even higher at 5.90%. That makes servicing our huge debt pile more expensive and pushes us closer to the fiscal brink. We already spend around £130billion on debt interest every year. As new debt is refinanced at today’s higher rates, the fiscal pain will compound. It’s pretty much the worst news John Healey could have had.

Despite that, Burnham seems oblivious. He’s already pledged taxpayer money to cut electricity bills, cap bus fares, save pubs and clubs, end rough sleeping and improve West Midlands buses. He’s got bigger plans too, including a council housebuilding boom and reforming our ragged social care system. It all costs money.

He’s doing this at a time as borrowing costs surge, the UK owes £3trillion, and the economy has almost ground to a halt. It’s the worst possible moment to announce a debt-fuelled spending spree. Britain already pays a premium to borrow money, because bond markets don’t trust us.

Yields aren’t rising solely because of Labour. The Iran warn is pushing up energy prices and inflation expectations. Borrowing costs are rising everywhere, as bond investors revolt at the huge debts piled up by governments around the world. They’re demanding more interest to reward them for the added risk. The global nature of this crisis only makes our situation more explosive.

If the war drags on and oil prices and inflation climb higher, gilt yields might hit fresh highs. Labour already spends £1 in every £12 on servicing the interest on our debt. That will rise.

Burnham and Healey cannot go on a spending spree now. Yet if they don’t spend more, what’s the point of them? It’s the only way they’ll fund their big plans. Burnham may rue the day he entered Number 10. It’s tough at the top.