New Prime Minister Andy Burnham is celebrating his dream job, but a £3trillion problem threatens to derail his tenure. Britain's national debt has passed the grim milestone, and the true burden may be far higher.
A Hidden Fiscal Timebomb
The Taxpayers' Alliance estimates the real figure at £12trillion when unfunded public sector pensions, PFI contracts, and nuclear clean-up costs are included. Burnham's plans to expand the public sector and re-industrialise Britain will only add to the debt.
Chancellor John Healey is reportedly looking at fiddling fiscal rules to unlock an extra £9billion a year of borrowing, every penny of which will incur interest. But a second, hidden problem looms: a financial timebomb set by former Labour chancellor Gordon Brown nearly 30 years ago.
The 1997 Pension Raid
After Tony Blair's 1997 election win, Brown scrapped tax relief on dividends, destroying private sector final salary pension schemes. Today, most private sector workers gamble on the stock market, while public sector workers retain guaranteed pensions.
Traditional pension schemes and insurers, once major investors in UK gilts, held 75% of them before Brown's move. Now they hold below 20%, with overseas investors holding a third. Britain relies on foreign money to finance its debt, as former Bank of England governor Mark Carney said, on the "kindness of strangers."
Rising Borrowing Costs
Foreign investors often have short-term strategies and may dump UK debt in a crisis, as seen during Liz Truss's premiership. UK borrowing costs are the highest in the developed world at nearly 5%, with £1 in every £10 of government spending going on interest.
With the economy set to grow just 1% a year and an ageing population, the debt will only rise. Burnham and Healey are in denial, preferring easy popularity over facing the truth. The timebomb is ticking, and it may explode on Burnham's watch.
