This is worse than the IMF-bailout crisis
Unlike Labour in the 1970s, Starmer and Reeves have no plan or clue how to steer the UK from disaster.
PHIL MULLAN
As Labour’s annual party conference in Liverpool gets under way, chancellor Rachel Reeves will have one eye on 26 November. That is when she will deliver what some are calling a crunch budget.
And no wonder. Britain’s fiscal and economic situation is dire. Successive governments have been relying on fantasy economics, in which a country can live forever beyond its means. Public debt (£2.8 trillion as of March 2025) is now fast approaching the equivalent of one full year’s annual output, with no real plan to end the borrowing. Behind the tattered cloak of the fiscal rules, so beloved of Reeves, governments have refused to bring spending down in line with the taxes generated by a stagnant economy.
Recently, however, critical voices have started making themselves heard. Commentators and economists insist the ever-increasing debt pile is unsustainable. They point to the rising yields Britain is paying on long-dated government debt, the highest among the G7 advanced economies. This is what the media are discussing as a developing ‘bond-market crisis’.
This means that the usual financial lenders – pension funds, insurance companies, investment trusts and banks, both domestic and foreign – are demanding ever greater returns for lending to the British state. Partly this is justified as offsetting Britain’s relatively higher inflation rate. But it is also testament to investors’ mounting concerns about Britain’s economic future. They can’t ignore the palpable absence of a coherent government plan to bring borrowing under control.
Liam Halligan, a Telegraph columnist and host of the Planet Normal podcast, argues that Britain seems stuck in a high-debt, low-growth doom loop. Not only have successive governments failed to reset the public finances after the huge expense of the Covid lockdowns, the current Labour government is now also in the perilous situation of having to borrow to service existing debt.
Why does Halligan call it a doom loop? Because paying the interest costs of existing debt is adding to today’s borrowing. This increases the amount of outstanding debt, thereby tending to inflate further the cost of debt servicing, requiring even more borrowing. And so on and so on. Halligan points out that last year the government borrowed £148 billion, which is about five per cent of GDP. That’s concerning enough. But over two-thirds of this amount – £105 billion – was spent just on servicing existing debt. That is nearly double what the government spent on defence.
As a result, Halligan and other level-headed economists have been warning that Britain is heading towards a 1970s-style debt crisis – that is, at some point soon, those bond investors might stop lending. Critics claim we could be looking at a situation similar to that which faced James Callaghan’s Labour government in 1976, when it had to resort to an International Monetary Fund (IMF) bailout.
That some commentators are now drawing these analogies with the 1976 crisis is understandable. It highlights just how bad the public finances are today. But, as ever, these analogies can obscure the historical specificity of both crises, then and now.
A lot has changed in the past half-century. In the 1970s, for instance, Britain stood out as the ‘sick man’ of Europe, which made it especially susceptible to a boycott by financial investors. But today, Britain is far from exceptional. There’s now a huge hospital ward of equally sick countries with unsustainable public finances – not least, France and the US. Both have even higher debt levels and anticipated budget deficits than Britain. They also share a similar political inability to do much about their problems.
Britain in 1976 was in the grip of a falling currency crisis, as well as a public-spending crisis. At the time, it had little choice but to appeal to the globally recognised lifeboat of the IMF, one of the few institutions capable of rescuing Britain. Since then, the IMF has become a rather less respected body. At the same time, the huge financialisation of the global economy has created many more liquidity options for governments under financial pressure.
Indeed, international financial funds are much larger today than they were in the 1970s. They are fuelled by the spare surpluses produced worldwide, but not utilised for productive investment. As Ruchir Sharma showed in What Went Wrong With Capitalism (2024), during the 1970s, the value of the financial markets was roughly equal to the value of goods and services produced by the global economy. Today financial markets are nearly four times larger in size than the global economy.
These inflating financial funds have to park their money somewhere. In a bubbly world of risky assets, even British government debt can seem a relatively safe place. So while the British government is highly unlikely to appeal to the IMF for funds, and its borrowing costs will certainly have risen, it could still conceivably access funds from private investors.
This is not to put a positive gloss on the situation facing Britain. In some ways, Britain finds itself in a much worse state, economically and politically, than it did in the 1970s.
We know that Britain’s public finances are in a terrible state. But the productivity slump following decades of insufficient investment in better technologies is posing an even greater problem. The lack of investment means that the growth in output per hour of work has been trending downwards steadily since the 1970s. It reached a postwar peak of an annual four per cent in productivity gains in the 1960s before falling to about half that rate during the 1980s. After the 2008 financial crash, productivity plummeted before moving only marginally above zero.
This matters in terms of Britain’s ability to access borrowing. For as long as productivity and economic output are moving steadily upwards, potential financial institutions are more willing to lend – because the state to which they’re lending will be able to service their loans. And, whenever the full debt falls due for repayment, the loan is likely to represent a manageable sum as the economic cake will be much larger by then.
Even back in the recession-hit, high-inflation, strife-torn 1970s, annual output per head of the British population still managed to increase by over a fifth in real terms. This wasn’t quite at the productivity levels of the 1960s, but it still represented a reasonable rate of growth in the eyes of financial lenders.
Today, such momentum in Britain’s economy is long gone. In the decade up to 2024, output per head barely rose at all. It was up by just over six per cent across the whole decade, which amounts to less than one-third of productivity increases of the crisis-hit 1970s.
The absence of those steady increases in productivity, which had continued since the Industrial Revolution in the early 19th century, explains why people’s living standards are no longer rising. Moreover, over the past half-century, the decay in productivity growth has also deprived the state of the funds necessary to upgrade and improve public infrastructure, utilities and services.
In short, the productivity slump drives and underpins the incapacity of the state, and the degradation of public services and infrastructure. Indeed, it is the problem of productivity growth that has produced the government’s most pressing economic challenge: how to deal with the unprecedented peacetime expansion in public indebtedness.
If productivity decline is a result of economic constraints that have been built up over time, the grim state of the public finances is different – it is primarily a political problem.
Since the 1980s, successive governments of all political stripes have side-stepped the reality of the productivity slowdown. Whether through wishful thinking, stupidity, complacency or cowardice, this dereliction of duty, this refusal to confront the problem, has been compounded by governments’ efforts to maintain and expand day-to-day public services and welfare entitlements. They really have acted as if ‘money is no object’. This is a matter of bad political choices, not economic fate.
It’s in this political realm that Britain, and most other advanced industrialised countries, are in a much worse situation today than they were 50 years ago. Whatever you think of the individual politicians prominent in the 1970s and earlier, they were always willing to exercise political leadership. They were guided by particular strategic visions.
By contrast, today’s politicians are leaders in name only. Writing in The Sunday Times, journalist Matthew Syed, a Labour Party member until recently, pithily summed up the Keir Starmer government: ‘This is a government with no rudder, no map, no compass, no vision, no helmsman, no clue.’
Back in 1976, Callaghan, the newly appointed Labour leader, and his chancellor, Denis Healey, clearly recognised the seriousness of the UK’s economic and fiscal position. They didn’t need any fiscal rules or an instruction from the Office for Budget Responsibility to arrive at that judgement. Under their leadership, the government continued making public spending cuts to reduce the deficit, well before it signed Britain’s famous Letter of Intent to the IMF in the middle of December.
The qualitative political difference is that the government then was acting on its own authority, exercising its own judgement, demonstrating its own leadership. The IMF didn’t ‘force’ Labour to launch its curbs on public spending. Yes, the US administration and others were certainly putting pressure on Britain to give up its costly delusions of post-imperial grandeur, and to stop living beyond its means. And successive British governments’ attempts to retain an international status for sterling were also proving increasingly burdensome. But the Callaghan government was nevertheless acting on its own terms, doing what it thought was in the national interest, not hiding behind orders from the IMF technocrats in Washington.
It was not even the case that an IMF loan was that unusual back then. Many other countries, Britain included, had borrowed from the IMF before, although the 1976 loan deal was the biggest to date. Moreover, the idea that the loan saved the UK from national bankruptcy is an overstatement. The 1976 deal acted primarily to reassure international investors that the government was serious in its objectives. It provided a stamp of approval for potential lenders. The loan itself was only half utilised, and was fully repaid by May 1979.
Throughout the 1976 crisis, Callaghan and Healey demonstrated a determination and resolve palpably absent today. They stood firm in their commitment to spending reductions in the face of opposition from their own MPs and some ministers. This was despite Labour not even having a majority in the House of Commons. It makes for quite a contrast to Starmer and Reeves. Despite their ‘landslide’ majority of over 170, they capitulated almost instantly in the face of opposition to their modest welfare-reform proposals.
There was no such pusillanimity from Callaghan in September 1976. He took the fight to the Labour Party conference in advance of the IMF loan deal being signed. That’s when he made his landmark speech, effectively rejecting postwar ‘Keynesian’ political orthodoxy – namely, that state intervention, through fiscal and monetary policies, could sustain capitalism. Callaghan did not hold back in spelling out the harsh circumstances.
He told the delegates about the necessity of confronting harsh realities, cautioning that, ‘for too long, perhaps ever since the war, we postponed facing up to fundamental choices and fundamental changes in our society and in our economy’. He continued:
‘We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and that insofar as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.’
Peter Jay, an economic journalist and future UK ambassador to the US, pronounced Callaghan’s speech ‘the most breathtakingly frank public announcement since Saint Paul’s first epistle to the Corinthians’. This may have been overegging it somewhat – Jay was Callaghan’s son-in-law, and is also thought to have written the key parts of his father-in-law’s speech. But Callaghan’s was certainly a bracing, politically courageous intervention.
Healey’s intervention at the conference was perhaps even more dramatic. He was scheduled to fly off to attend an IMF meeting in Manila, but at the last minute decided to postpone his trip. Instead, he commandeered an RAF plane and flew to Blackpool to back up his boss’s arguments. On his arrival on stage at the conference, amid booing and general unrest, he quickly asserted himself: ‘I don’t come from the Treasury. I come from the battlefront.’
As the Guardian’s political editor, Ian Aitken, described Healey’s performance at the time, he ‘put his head down… and bulldozed the Labour Party conference into giving its full and overwhelming support to the government’s attempt to save the pound’.
Whatever you think of the politics and policies of the Callaghan-Healey team in the late 1970s, their robust political leadership shows up the timidity and ineffectiveness of Starmer and Reeves. If the IMF was ever to get involved today, it would only be because Starmer and Reeves were buck-passing daunting decisions to another technocratic institution, more unaccountable even than the Office for Budget Responsibility.
Properly getting to grips with Britain’s grave financial difficulties is just as much a political as an economic challenge. It will require a style of political leadership not seen since the 1980s. It will demand a willingness to engage with the electorate and spell out hard truths. And it will need politicians with the resolve to take tough decisions.
We can’t expect such qualities from today’s shallow, managerial political class. So British people will have to create such leaders themselves. We need a new generation of politicians who take their responsibilities seriously. Who will stop evading responsibilities in the deluded belief that they can run a profligate state forever. Because sooner or later, a brutal reality will intrude on their fantasy.
Phil Mullan’s Beyond Confrontation: Globalists, Nationalists and Their Discontents is published by Emerald Publishing. Order it from Amazon (UK)
This article (This is worse than the IMF-bailout crisis) was created and published by Spiked Online and is republished here under “Fair Use” with attribution to the author Phil Mullan
See Related Article Below
Crippling taxes, dinghies and digital ID.
Send in the clowns
TOM ED
In the vein of conservation gamekeepers shooting their own rhinos the Homelessness Minister Rushanara Ali (no, me neither) makes herself politically homeless for making tenants homeless in order to increase her rent revenue. As her resignation letter joins the Deputy Prime Minister Angela Rayner’s in Two-Tier Starmer’s in-tray, it seems there are more adults leaving the room than arriving. In classic smarmy polish, Starmer announced Phase 2 of his collapsing governance with all the confidence of a best man realising that the stag-do ‘lily-pad’ race across the hotel pool using Pringles and balancing hotel buffet on their heads might require the weekend to pivot if it’s to last a second night.
What seems to have taken people by needless surprise is that the issue with left wing politics is that it ignores human nature. It fills its sails with the sanctimonious breeze of principles, but not practice. Both ministers are perfect examples of how socialists love to spend other people’s money, but never their own. Taxes and redistribution of wealth are heralded, so long as it’s not their own cash. Ali’s greed increasing homelessness isn’t too dissimilar to Ed Miliband’s contradictory job title of Energy Security and Net Zero, which is like having tug-of-war with himself, and not in a good way.
Minister for Taking the Piss was Angela Rayner, who declaring that Britain is in ‘the middle of the most acute housing crisis in living memory.’ Labour’s solution to this is to add 2.5 million migrants to the population, while planning to build 1.5 million homes in a country that is already the most densely populated in Europe. Meanwhile, aiming to take an axe to right-to-buy council property after she herself bought her council house in Stockport. You could forgive her if she wasn’t so vocal about the importance of people paying huge amounts of tax. There was hubris about her vaping in Brighton kayak with her washed up political career only days away.
However, Rachel Reeves from Accounts is the real danger. Anyone who thinks more tax on a populous already crippled from the moment they leave the house isn’t simply deluded but evidently purposefully destroying an economy that is about to be engulfed by AI induced unemployment. You need to make employing people as attractive as possible, not hand HR departments DEI armbands and the sort of power last seen in Caligula, nor raise business tax and whack up NI to discourage further hiring. Putting someone in charge of the economy based upon a fraudulent CV and never having had a meaningful financial job is appointing someone who’s never seen woodland as a tree surgeon. She’s increased capital gains, inheritance tax and self-employed income tax, yet receipts from these have gone down. So, what’s she achived? Britain is braced for the highest inflation of any major economy this year. The number of migrants in Britain now claiming Universal Credit benefits has exploded to over a million while borrowing to pay for this has reached the sort of levels that has the IMF sharpening its pencils.
Rachel Thieves is so desperate to fund Labour’s ever-increasing tax bill that she now wants to put VAT on taxi journeys. Is this because a taxi tax looked like a clever couplet? Mind you HRMC are not known for poetry unless it’s lucrative enough to be taxed; any surviving fax machines (probably in the NHS) will be quivering at the prospect of the fax tax, which might raise double figures for the HRMC.
You see a person by what they do, not what they say, and these socialists are hypocrites – handing down laws and taxes they have no intention of following themselves. At least Tories are honest about wanting to make money. If you’re going to embrace a political doctrine that robs from workers, then at least live by the sword you swing. The problem is our politicians don’t know what real work is; members of the cabinet have never had proper jobs. They are clueless as to the risk, effort, imagination and entrepreneurship required to survive in the world outside Westminster. Businesses asking the government to help reduce their energy bills is like the murder victim asking the aggressor to loosen the stranglehold on their throat. Instead, thanks to Miliband businesses are uncompetitive and moving overseas.
Governments never make money. They simply take it from the population and redistribute it where they feel fit, which is currently intentionally publicly on large groups of unidentified men of fighting age that have apparently fled war and famine via France without their women or children. The ease with which these young men arrive on our shores, aided by RNLI and Border Taxis ( I mean Control) suggests it is planned and deliberate. After all, what angers a beleaguered population, crushed beneath a cost of living crisis caused by their own government via lockdowns, huge unsustainable national borrowing and energy prices the highest in the world thanks to the Net Zero cult, than seeing freshly arrived men being put up in hotels with three meals a day, Playstations, and even trips to zoos at the cost of the frankly frazzled tax payer? With a stagnating economy and a National debt of £2.8 trillion the UK is in no position to assist those from outside the country; it’s like borrowing money to pay the homeless man by the tube, with interest costing £210m per day. Talking of which, don’t we already have a moral obligation to our own homeless before inviting more in?
The current Labour government seems committed mainly to increasing those dependent upon State benefits while encouraging the millionaires and entrepreneurs who pay for them to leave the country. And giving preferential treatment to newcomers is purposeful. Treating those arriving at the party late, without booze or snacks, more favourably than those who arrived early to help set up is intended to provoke anger. Reeves crippling the economy while the government increases unsustainable dependency upon the welfare state is the dynamite beneath the ground that they always intended to fuse.
It’s hard to imagine a government less interested in what it claims to believe than the current assortment of invisible at best ministers, incompetent at average and plain evil at worst. At least Guardian readers can show their solidarity with a government at war with its own population with a £280 jumper, rather than Welcoming Refugees into their actual homes. The current theme for the so-called Labour government is Michael Jackson’s They Don’t Care About Us.
All I want to say is that they don’t really care about us
Don’t worry what people say, we know the truth
All I want to say is that they don’t really care about us
There’s a human insensitivity to injustice and it is being stretched to the point of no return. That Hadush Kebatu is jailed for 12 months for sexually assaulting a woman and a 14-year-old girl in Epping, that’s a child, having arrived in the UK eight days earlier, or MP Mike Amesbury walking free after punching a constituent in the street, while Lucy Connoley is sentenced to 28 weeks for a tweet, is exactly the sort of purposeful establishment trolling that is intended to incite unrest.
And unrest is the plan. Purposefully allowing unidentified immigrants to enter the country illegally and be put up at taxpayers expense at £8m per day during a cost of living crisis, while army veterans live on the street, and then placate the understandably furious voters by offering the solution to the State created problem is not accidental. Welcome to compulsory ID cards people.
They have been foreshadowing digital ID for a while, with more nudges than a sexual innuendo contest. The government creates the problem, to which there is an understandably reaction, and now the State has the solution. It’s clear that it’d be cheaper to tag the newcomers rather than inflicting a compulsory tag upon the entire population, but it’s not about cost. A digital ID will hold all our data: our shopping habits, our carbon points, vaccine status (remember the vaccine passports?), tax, 15-minute city compliance and banking. You’d better not upset the State when they hold the power over your ability to function in society. Listening to Keir Starmer is a good argument for AI; there’s been draught excluders with warmer personalities, but it belies his sinister intent. He’s now claiming to be fighting for the soul of the country while lacking one himself.
And let’s be clear: digital ID was never in Labour’s 2024 general election manifesto. It was not mentioned once. Nobody in this country was offered digital ID, or even asked for digital ID, nor ever voted for digital ID. Yet, Starmer announces it as the answer to the illegal immigration he has encouraged. The game is clear, but they may have panicked. There’s a greater distaste for ID cards than Labour expected. Misreading the public mood can still sink a government time and we are in tumultuous seas.
This article (Crippling taxes, dinghies and digital ID.) was created and published by Tom Ed and is republished here under “Fair Use”
Featured image: investireoggi.it.
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