To borrow a phrase that was once famously used about the Pentagon, ‘a billion here, a billion there and pretty soon you are talking real money’. The Labour government has certainly been spending some ‘real money’ this week. If you tot up the total amount it has added to spending over the last five days, it comes to an extraordinary £50 billion. The British state is rapidly losing control of its finances, and it is no surprise the bond markets that will have to finance it all are getting worried.
If the Chancellor Rachel Reeves decides, like many of us, to check her bank balance as the week ends, she will get a nasty shock. Let’s take a look at some of the debits she has chalked up since Monday. The week opened with the re-set with the EU, which, while it may or may not help trade, comes with an estimated price tag of £16 billion once all the contributions to EU programmes the UK will have to make are added up.
It is hardly surprising that gilt yields are soaring
On Tuesday, we learnt that there was an overspend of £4 billion in April as, even with extra taxes coming in from the increase in employer’s NI announced in the Budget, the state spent far more than forecast. On Wednesday, Prime Minister Sir Keir Starmer announced a U-turn on the Winter Fuel Allowance, with the details to be announced later this year, and there were reports of concessions on the two-child benefits cap as well. The cost for both changes? An estimated £5 billion.
By Thursday, the government was really getting into its stride. There was the deal over the Chagos Islands, which will cost the UK an estimated £10 billion. And then there were above-inflation pay rises for the public sector, led by the NHS, which will add another £7 billion to the total in the first round. There’s every chance that figure could triple to as much as £20 billion if other workers demand similar increases, and strikes are staged to push the total even higher.
True, some of the figures are estimated, and we don’t have precise numbers yet. But there is one thing we know for certain about public spending: the total bill is always higher than you expect it to be.
When you add it all up, one point is clear. The Labour government has committed to spending an extra £50 billion over the course of a single week. Against that backdrop, it is hardly surprising that gilt yields are soaring. Government spending is spiralling out of control, and the Starmer administration is no longer even trying to balance the books. If there are many more weeks like the one that has just finished, the country will go broke.
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