Fraser Nelson

The beginning of the end?

The beginning of the end?
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Is the Government about to go pop? If Britain does go to the IMF it would be because the Government fails to find buyers for its debt. And this morning, for the first time in seven years, this happened. It could be a one-off, it could be for technical reasons as yet undisclosed. But given how dependent Brown is on being able to bum money from the City, a so-called buyers' strike (ie, when investors say 'we don't want your crappy debt') will be hanging over him like the sword of Damocles.

Britain this year will need to raise £180bn according to Ernst & Young, equal to the entire economic output of Ireland. It's a mammoth task. And this morning the auction of the 4.25% gilts due for maturity in 2049 failed to find enough buyers (ie, "uncovered"),  with bids of just £1.6bn against an auction size of £1.7bn.

Why did it fail? There are technical expanations - eg, that the 2049 debt is outside the range covered by the Bank of England's quantitative easing scheme. Or it could be that the market is spooked by yesterday's shock inflation increase; and, in particular, by Mervyn King basically saying Brown's debt binge has to end (suggesting even he has deep reservations about QE). So it could well be that confidence in the UK debt is starting to buckle. And, God knows, there are enough governments out there, issuing enough debt, for anyone looking for alternatives.

So at the G20 on 2 April, Brown's mind will be on something else. He is planning another debt auction then, and if it fails to find buyers then word may be out: Britain is going bankrupt. All of this explains why his so-called quantitative easing stipulates that the freshly printed money should be used to buy ropey UK government debt. But even this policy may not be enough.

No one can really tell, yet, whether the end is nigh. But if the end does come for Brown's spending plan, it would start with a failed gilt auction.

Written byFraser Nelson

Fraser Nelson is the editor of The Spectator. He is also a columnist with The Daily Telegraph, a member of the advisory board of the Centre for Social Justice and the Centre for Policy Studies.

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