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UK borrowing costs hit 28-year high as pressure mounts on Starmer The yield on 30-year UK government bonds – also known as gilts – jumped as much as 13 basis points to 5.807 per cent. This is the highest number since 1998. Tom Swarbrick is joined by Ben Kumar from 7 Investment Management and Lord Jim O'Neill, advisor to Rachel Reeves when the Labour Party were in Opposition, to discuss what is happening to the UK economy right now. Listen to the full show on the all-new LBC App: https://app.af.lbc.co.uk/btnc/thenewlbcapp #TomSwarbrick #Labour #LBC #uknews #ukpolitics #keirstarmer LBC is the home of live debate around news and current affairs in the UK. Join in the conversation and listen at https://www.lbc.co.uk/ Sign up to LBC’s weekly newsletter here: https://l-bc.co/signup
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0:00
Where in the middle of all of this chaos is the Chancellor
0:03
Because as far as I can tell, Rachel Reeves is meeting with a local bookshop owner in number 11 this afternoon
0:08
and hasn't really said much else. How real is the threat of economic chaos and what can you do about it
0:15
Joining me in the studio is Ben Kumar from Seven Investment Management and Lord Jim O'Neill, the former chief economist at Goldman Sachs
0:21
commercial secretary to the Treasury and advisor to Rachel Reeves when the Labour Party were in opposition
0:25
Gents, thanks very much indeed for coming in. Ben, let me start with you. What is the city saying about this political turmoil
0:32
How would I sum it up? Oh, no, not again. Yes. No, not again
0:37
Not this more uncertainty, more who's going to come in, what are their policies going to be
0:42
If no leadership changes, does it mean that there's going to be further change
0:46
to the plans that were set out? I guess when it comes to government borrowing
0:50
it's yet another sign that you need a credible long-term plan, and there's not much evidence of one at the moment
0:56
You said 30-year government bonds at 5.7%. They actually went up above 5.8%, fell back a little bit, but it's not good
1:05
If you want to borrow money, if you want to credibly invest for the long term
1:09
you'd like to do that at as low a rate as possible on the international market. Jim, why is that happening
1:16
Partly for what Ben said. It's just yet again. and people are definitely fearful of whoever might appear to replace the current PM
1:29
I suspect myself, it's not being discussed in the markets, that there is also a slightly growing premium for our friend Mr Farage
1:39
And certainly when I look at it ytically, if people are worried about what any of this lot might spend
1:46
and what we've been through with Liz Chaucer, etc., etc., if you actually look at what reform are saying
1:55
oh, my God. So, in your view, they're not just pricing in
1:59
whoever comes next after Keir Starmer. They're pricing in reform. I think there's..
2:04
My own view, and I probably feel this more than the markets do
2:09
but it seems to me this is coming in them. We're living in cloud cuckoo land
2:13
we have no one that wants to be serious i've talked to you about this before tom yeah we have
2:19
nobody wants to be serious about the four or five obvious big things somebody's got to be honest
2:24
about if they're going to be a sustained leader in this country irrelevant of which political party
2:29
and and and what adds to the sort of slightly weirdness of it voters seem to think you know
2:36
somebody comes in because we didn't want the last lot and they get half an hour's bit of respect and
2:43
support and then they get sucked into like, well, they sound better because that person
2:48
is telling them they're not going to do anything other than provide them with goodies. And it's
2:52
cloud cuckoo land And we need to get real And the prize for somebody that will I think it pretty big because it not that the issues that need to be dealt with aren that big if somebody
3:04
were prepared to be honest about them. What's the biggest issue that someone needs to be honest about
3:10
You're going to say pensions, aren't you? I know he's going to say pensions. I mean, the triple lock is ridiculous
3:15
Thank you. The misallocation of so many welfare payments has become ridiculous
3:21
I think a million people claiming three PIP payments, more than the minimum wage
3:27
Everybody knows it. Nobody stops it. All this talk about housing reform, we have the most idiotic tax system about housing
3:36
And then on top of it all, we have this sort of a cross-party belief that we can increase spending on NHS forever
3:44
and we don't need, particularly in this age of AI, which could, if applied properly
3:52
if we had somebody that said, we're actually going to cut the share of spending on NHS
3:57
and that's going to control us on what we're going to do. But it's got to be real
4:02
When Maggie Thatcher was finishing or I was coming out of university, we spent as much on education as we did on health, which is sensible
4:11
Today we spend three times more on health and education. And if we don't get real in the manner in which Lord O'Neill suggests, Ben
4:17
what is the price that the UK PLC is going to have to pay
4:23
Huge increase in debt costs, presumably. Increase in debt costs? I don't think it'll be overnight, though
4:27
It's just more and more of this. Every 18 months, you get another change in leadership, another new plan
4:34
And I'm completely, completely with Jim. There has to be some pain
4:38
It's not that someone just hasn't done the sums. I'm not sure it's pain
4:41
It's just I think the markets would reward UK PLC so much that that would cause such a boost in financial conditions
4:50
Consumer and business confidence would rise a lot. I guess it's voter pain, right
4:54
You're going to have to – someone is going to be unhappy. If you cut spending, if you raise taxes or if you borrow more – borrowing more hurts us all in the short term and the long term
5:03
If you raise taxes, there's not a load of appetite for that out there
5:07
and if you cut spending, when you cut it from pensions and I completely agree you can't keep spending £146 billion a year
5:16
inflation linking it, 2.5% you can't do that but I think the big problem is it's death by a thousand cuts
5:24
everyone comes in, everyone comes in with a new plan it doesn't work and then borrowing yields go up again
5:29
and again and again and again and I will just say this, at a time where in the world
5:34
it is there are opportunities to attract people and talent places like the middle east have you
5:41
know been drawing a lot of a lot of talent to them suddenly it doesn't look quite so attractive
5:45
anymore the uk is in a perfect position to do this if we were to seize the opportunity maybe
5:49
you don want to go to the us we had a lot of students choose uk universities but if we keep messing it up they go elsewhere I would Go on Jim issues slightly with Yes it has been drip drip drip
6:02
but I think we're now at the point where if we go through the labour machine
6:06
doing its own almost precise version of what the Tories have done
6:10
because the other thing we've not talked about yet, this idea that you can bring in whichever ambitious person
6:15
without going back to the electorate... I'm not a political yst, but that strikes me as strategically a pretty disastrous thing to do
6:23
And again, it's linked to this where we're not really going to do anything that really hurts anybody
6:28
I think there is a growing risk of a significant escalation in the financial market reaction
6:33
Because people can see they're living in dream world, whether it be the potential new leaders
6:40
How would that risk show itself? We could, instead of having 20 basis points rise in 10-year bond yields the past two days
6:47
we could find it being 100 basis points. 1%. So it could be 6% or 7% is what you're saying
6:54
And what does that mean for my listeners? It would mean a massive increase in mortgage rates for a start
7:01
which would obviously cause a lot of pain to anybody that has to borrow a lot of money to pay their mortgage
7:08
It would have all sorts of other consequences for things that are linked to official notes
7:13
How is this overcome? and who's going to do it? What are the mechanisms by which a political character
7:19
whoever that character might be, steps in and does the things that you want to do? I mean, in my whole life of being in finance
7:26
one part of me answering is you have to go through it to force reality
7:30
And, you know, it's a bit of, to some degree, it's a bit of the historic French problem inside of Europe
7:35
because France is always so close to Germany. We've never had a real crisis in French financial markets
7:42
unlike Italy and Greece. But, you know, look at Greece. Greece went through a hell of a mess
7:47
The past few years, Greece has been the strongest growing place in Europe because it's changed. Are we in that Greece death spiral
7:53
Not as bad as Greece. Not yet, but if we're not careful
7:57
and we carry on trying to support somebody saying, oh, I'm going to come in and give you another lot of goodies
8:02
that I haven't thought of, we might not be that far off. It's really..
8:06
I mean, we need to change the mindset of everyone. It's delusional
8:10
And dealing with it shouldn't be regarded as pain. because the financial markets can play the other way
8:20
And as Ben touched on, I've just come back from the States
8:23
where there's all sorts of issues going on about our friend Mr Trump. You could get a huge amount of money coming from the States
8:30
never mind the Middle East. Without wishing to get too personal, I'm going to get personal. Is Rachel Reeves part of that delusion
8:37
Is she delusional? I think Rachel is being constrained by her next-door neighbour
8:43
and of course stating the obvious the financial markets do respect the fiscal rules that she stuck to and the other important thing I would add which I think if it were Andy Burnham by the way we get a flavour of more She also stuck to trying to grow public investment spending which I think
9:00
is desperately needed as part of these other things I've said. First finance
9:04
minister we've had in at least 25 years that's done that. Huge rise in taxes. She told
9:12
we won't go to see national insurance rises hit employers. The business risk revolutions
9:16
I'm not sure a lot of those decisions were made by her. I think, as we often see
9:22
and it's a bit of a miracle how number 10 and 11 have stayed together
9:27
we often see that the life of a finance minister comes to an end
9:31
because they get so cheesed off with what they're being told to do by number 10
9:35
When was the last time you spoke to Andy Burnham? Recently. Does he want to be Prime Minister
9:41
Probably. Do you think he's down in London? Why do you think he's down in London
9:45
He comes down here pretty often. You think he's on a sightseeing at all
9:49
As somebody who is heavily involved in Mancunian stuff and the north
9:55
I worry that all of this could lead to a significant issue for Greater Manchester
10:03
One thing that I don't think gets talked about down here is that if Andy does go for it
10:08
we might have to have an election for a new mayor. And given the latest opinion polls, that could be a reformed person
10:15
But do you want Andy Burnham to be Prime Minister? I think we need to respect the public
10:24
And I don't... It was quite clear to me that one of the things that's really caused damage to the Tories
10:30
is that they brought in two new Prime Ministers, despite the fact the public didn't really want them to
10:35
This government came in with a very weak mandate from the public
10:39
We've just seen what was said on Thursday. And so the idea they just bring in somebody else, whoever it is, and I like that
10:46
I've got a huge amount of time for Andy. I don't think it's the right thing to happen
10:50
If it is going to, and I'm going to contradict myself because it's pretty clear that the PM
10:54
is losing a lot of support. Andy has presided over a fantastic story in Manchester
11:02
And so long as he had some proper, perhaps stronger fiscal rules, and I don't mean that
11:08
by just being tighter. I mean, even more credible ones that allow for the market
11:12
Well, he can't tell the bond market to go swing. No, he's still. As he did in an interview a few months ago
11:16
No, and he's got to row himself back a lot from that. That's for sure. So if left-wing Labour MPs are hoping for someone to come in
11:23
and just say, ah, well, bond markets take a running jump. Guaranteed crisis. Virtually guaranteed
11:28
How did he row back on that, given that he said it? Given that's one of the things that people like about, quote-unquote
11:32
I don't know. Is it Burnhamism or Manchesterism? I don't know. That's for Andy to figure out
11:38
You get on the phone to him. Great to see you. Thank you for coming in. Appreciate it
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