𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Andy Burnham’s in deep money trouble and that means you and I are too. Between us, we owe £3trillion or £73,500 for every income tax payer. That’s the level of overspending and borrowing successive governments have racked up. Not exactly chump change. And all to avoid the political unpopularity of making cuts. Borrowing money is the easy bit, isn’t it? Everyone knows that. It’s paying it back, or even making the interest payments, that’s painful. And the pain is really kicking in now because our lenders are turning the screw. They’re demanding higher and higher interest payments from us, at the worst possible time. Just when there’s no spare money and our economy is stagnant.

New higher interest rates mean that by 2030 we’ll have to find around £615million pounds every single working day – just to cover the interest. That’s £615million that can’t pay for defence or new schools or tax cuts. We’re truly snookered and the government’s only options are to raise taxes or slash spending. I think we all know which one Burnham and co will choose. To be fair, it isn’t just Britain that’s under the cosh with too much debt, others are in the same boat. After the financial crisis of 2008 and the Covid pandemic all governments are struggling. But we feel more pain in the UK because we’ve borrowed so much and our prospects are gloomy.

It’s the weakness of those prospects that concerns the bond market – the place governments borrow money from. It now charges us 5.2% interest to borrow money for ten years – a full 1% higher than former financial basket case Italy. Under Giorgia Meloni, Italy has got its house in order and it manages money well. It’s now seen as a safer bet hence can borrow money more cheaply. Italy’s enjoying a virtuous circle. We aren’t feeling the same love.

For years I worked on the financial markets as a trader and fund manager, so I’m watching recent moves like a hawk. I have to tell you: what I am seeing scares me. It should scare you too. For years we borrowed money like it was going out of fashion and now the chickens are coming home to roost. Talking of chickens, the blame lies with our headless chicken politicians who flapped and flailed, avoiding the real world and borrowing more and more – hoping economic growth would appear and bail us out. Sadly it hasn’t.

Our entirely predictable problem has recent precedents. Most obviously Greece, a country that was effectively bankrupt and had to be bailed out – inflicting horrendous pain on its most vulnerable citizens. Greece had to close hospitals and jack up all taxes, while unemployment surged past 20%. All Greeks suffered, property prices fell by 50% and even the poorest citizens had to pay for vital medication so many simply went without.

That wouldn’t happen there though, would it? Greece’s slide into insolvency was slow, at first. By the time the public could see what was happening, and the politicians admitted it, it was too late. The interest rate the Greek government had to pay was a reasonable 4.5% in April 2008. But excessive spending and poor management saw it reach 8% by May 2010, spiking at 28% two years later. That decline was obvious early on and it could have been corrected, but no one in power was willing to take action. We are on the same path.

From December 2023 to today, the interest we have to pay has risen from 3.86% to 5.25%. We are not in the same situation as Greece yet. But we are on the same trajectory. Hiding from financial problems doesn’t make them go away. The only remedy for excessive spending and too little growth is to cut spending. It’s obvious really. We have to live within our means – that’s how the world works

Margaret Thatcher made this clear by comparing a country’s finances to managing a household budget. She swept into office in 1979, on the back of catastrophic financial management by Labour. Under their tax and spend approach Britain was nearly bankrupt – ultimately having to beg the International Monetary Fund for a bailout.

The profligate Labour Chancellor who oversaw our near collapse was a man called Denis Healey. Let’s hope that his namesake, Chancellor John Healey, is more honest with himself and us. Otherwise the pain is only just beginning.

Andy Preston is a former fund manager and was the elected mayor of Middlesbrough from 2019 to 2023