Britain’s addiction to borrowing is a recipe for disaster

Is Britain about to be plunged into even greater economic chaos? Pundits have highlighted a remark made by the supposed prime minister in-waiting, Greater Manchester mayor Andy Burnham, in an interview he gave to the New Statesman last year. The government, he said, had to ‘get beyond this thing of being in hock to the bond markets’. Understandably, the worry is that a Burnham – who, if successful in the upcoming Makerfield by-election, will likely replace Keir Starmer as prime minister – would water down Labour’s ‘non-negotiable’ fiscal rules to finance even more public borrowing.

Given that Britain is already paying significantly higher interest rates on long-term bonds than its peers, Burnham’s one-liner is easy to ridicule as infantile and financially illiterate. But it must be taken seriously, not least because a hostility to bond markets – a view also championed by Green Party leader Zack Polanski – is fast becoming the orthodox position on the political left.

This argument needs to be defeated once and for all. Our addiction to borrowing – a permanent feature of British politics since the Second World War – is at the root of three issues that have led us to the financial and social abyss we find ourselves in. Borrowing has become financially destructive, created a class of weak and dishonest politicians, and has entrenched a culture that has become increasingly dependent on handouts and subsidies. It must be ended.

Let’s start with our grim financial position. Britain’s national debt has grown from the equivalent of about one quarter of national output in the late 1980s, to two-thirds shortly after the 2008-09 financial-crisis bailouts, to around 100 per cent today. The interest on existing public debt now costs over £100 billion a year. This makes servicing the national debt the third largest source of government spending, after social security and health. About one in every £30 of new wealth being generated is used up servicing past profligacy. In the latest financial year, 2025-26, about six out of every seven pounds of new government borrowing went to paying the interest costs on existing debt. We are now borrowing to fund borrowing.

This profligacy has been as damaging politically as it has been financially. The ability to borrow at reasonable – though now rising – interest rates has been a boon for our new class of political managers, whose technocratic impulse is to avoid making hard choices. Rather than having to cut here in order to prioritise there, they have been able to spend more on everything – on education, health, welfare benefits and pensions, on public-sector employment and on private-sector subsidies. This attitude within the ruling echelons has shielded the voters from the hard truth that no society can live beyond its means forever.

The magic-money-tree approach to public spending underpins the third, and most debilitating, consequence of endemic public borrowing: the ubiquitous handout culture. This enfeebling form of modern-day alms has sapped incentives for people and businesses. It has dulled the traditional belief that progress and prosperity require a persistent effort to overcome challenges.

As the Stoic philosopher Seneca wrote, ‘difficulties strengthen the mind, as labour does the body’. But that notion that what doesn’t kill you makes you stronger has faded from contemporary life. Instead, the infantilising assumption has spread that in times of difficulty a state handout is always available, financed by borrowing.

Following decades of creeping welfarism, the extensive package of handouts during the Covid-19 lockdowns consolidated the practice of state dependence. Today, more than 24million adults – getting on for half the 55 million adult population – receive some form of welfare. Thirteen million are state pensioners, while 10million working-age people are claimants – nearly one in every four.

All these emergency rescues, public subsidies and handouts aren’t cheap. Sovereign borrowing has been a tremendous enabler of the ‘state can pay’ presumption. In contrast, a government courageous enough to eschew further state borrowing, and which argues that we need to live within our means again, would demonstrate its capacity to lead Britain’s national revival.

Critics of government borrowing generally run up against three words – John Maynard Keynes – which supposedly render their arguments obsolete. If the greatest economist of the 20th century championed government borrowing, they insist, who are you to contradict it? But this misrepresents Keynes.

Keynes’s theory was that governments should borrow temporarily during periods of economic contraction. Critically, he argued that they should run surpluses during the subsequent recoveries to pay off the debts previously incurred. The practice since the Second World War has been deficits financed by borrowing, even during times of economic expansion. In the four decades from 1945 to 1985, British governments ran budget surpluses in only seven years. Indeed, Margaret Thatcher’s single surplus year, in 1988-89, might not have happened without the wheeze of treating privatisation proceeds not as exceptional one-off revenues but as ‘negative expenditure’. Keynes would have viewed this addiction to borrowing as mad – as indeed it is.

There is one glimmer of reason in Burnham’s criticism of the bond market, although he almost certainly didn’t intend it. Contemporary politicians and commentators have become preoccupied by the ‘behaviour’ of financial markets, and modern political decision-making has become subordinate to what the markets will ‘tolerate’. This subservience explains why governments, going back to New Labour in the 1990s, have followed ‘fiscal rules’ to keep on the right side of the markets.

The tendency to anthropomorphise markets – to attribute them with human characteristics, emotions or intentions – has a long history. The original South Sea Company Bubble of 1720 was interpreted as a sign of undue market ‘optimism’ which was then shattered by a market ‘panic’. Ever since, people have resorted to attributing human feelings and characteristics to markets as a way of trying to make sense of economic and financial crises. Unable to fathom the underlying drivers of these events, viewing markets through the lens of human behaviour provides a language to describe what is happening. Markets are now regularly described as ‘exuberant’, ‘nervous’ or ‘gloomy’.

Talking about markets in human terms has become pervasive – even in times of relative economic stability. We hear it said that markets are ‘ignoring bad news’, or are ‘anticipating’ an AI-productivity revolution. This language can offer some assurance that an unpredictable world is not quite so incomprehensible. At least the ‘markets’ know what is happening.

All of this plays into the belief that markets control British politics. Burnham is right in saying that they shouldn’t. But he is wrong in his implication that they should, therefore, be ignored. If he doesn’t want the country to be ‘in hock’ to markets, then his first objective should be to stop borrowing from them.

That’s the challenge that any political leader needs to confront if they are to break free of managed decline. On their track record, neither Burnham nor any of the other existing Labour leadership candidates are up to this task.

Britain doesn’t need ever more borrowing to grow and prosper. What it needs most is a cultural shift to build personal and corporate self-reliance. Bond markets don’t create wealth or destroy it – our destiny is in our own hands.

Phil Mullan is the author of Beyond Confrontation: Globalists, Nationalists and Their Discontents.