- Original Poster
- #1
In April 2024, the UK's Office for Budget Responsibility forecast the Government would borrow £87bn over the following 12 months. When that financial year ended in April 2025, the figure was £148bn, i.e. 70% more! Fretting over whether “fiscal headroom” in 2029/30 is £5bn or £10bn is utter nonsense when the government can’t even get within £60bn of its borrowing estimate within the current FY. Britain borrowed £148bn last year and £110bn or three-quarters of that increase in national debt went on interest payments on debt previously incurred.
To my eyes, that is looking more and more like a death spiral of debt! So I thought I would do a bit of common or garden number-crunching -
Even a forward projection of the UK’s interest payments as a percentage of GDP from 2025 to 2040 under four plausible (though very optimistic) assumptions shows just how bad things are getting.
I assumed -
National debt rises ~3% annually
Interest rates gradually rise from 4.5% to 6%
Real GDP grows slowly at 1.5% per year
There are no fiscal or economic shocks coming from outside the UK.
By 2035, interest payments will be 8% of GDP, the classic danger threshold for fiscal sustainability. From there on, debts must accelerate upward. And that is making some VERY optimistic assumptions!
So, how about doing an Argentina?
Javier Milei’s libertarian experiment in Argentina is still unfolding, but it bears watching because he has attempted to shrink the state and grow the economy simultaneously. What he’s done so far - Cut public spending hard (especially subsidies and state employment). Allowed prices to rise dramatically (short-term inflation spike). Deregulated many sectors. Achieved a fiscal surplus for the first time in 16 years. Now GDP in some quarters (esp. in the private export sector) has ticked upward despite the pain. Today, Argentinian GDP is growing at about 6% p.a., second only to India.
However - Unemployment and poverty have also risen. Argentina has dollarisation pressures as people start to use the US dollar and unique structural issues, caused by years of neglect and corruption. It remains to be seen if this is growth from a low base, or a true turnaround.
But Argentina has shown that constant borrowing can't be covered by growth alone. Sooner or later, interest payments will crowd out everything else. Inflation + Rate Normalisation = Debt Doom Loop.
Unlike in the QE era, governments now have to borrow at higher rates, so refinancing old debt costs more. It's much like taking a new credit card to pay the old one, but with worse terms.
So austerity and stimulus must be targeted, not ideological. Milei slashed entire departments. The UK just tinkers here and there, rarely addressing the structural drivers of debt: pensions, NHS, local authority bailouts, civil service overstaffing, wasteful bureaucracies, etc.
The UK has undergone a deadly mix of political dogma combined with fiddling at the edges of problems. The Tory government wanted to introduce Milton Friedman's concept of a negative tax and got Universal Credit instead (that wastes 40% of its budget on admin). The Labour government needed to raise taxes but could not, so it raised NI rates and killed job growth.
And nobody knows what to do about the UK's national religion - the NHS. The idea of just getting rid of that monstrosity and replacing it with social insurance, similar to every other normal European country, is just unthinkable! So any sensible ideas go into the "Can't do! Won't do!" pile.
This government, like every other UK government before it, remains terrified of real change. So it does what all those other governments did before it - fudging the inflation figures (which we all know the ONS is doing!) and hiding the true scale of modal, median and mean income collapse, whilst pretending that some magic 'headroom' exists. These are all just symptoms of systemic denial.
So what comes first, currency collapse, system collapse, or a government that wakes up and smells the coffee?
To my eyes, that is looking more and more like a death spiral of debt! So I thought I would do a bit of common or garden number-crunching -
Even a forward projection of the UK’s interest payments as a percentage of GDP from 2025 to 2040 under four plausible (though very optimistic) assumptions shows just how bad things are getting.
I assumed -
National debt rises ~3% annually
Interest rates gradually rise from 4.5% to 6%
Real GDP grows slowly at 1.5% per year
There are no fiscal or economic shocks coming from outside the UK.
By 2035, interest payments will be 8% of GDP, the classic danger threshold for fiscal sustainability. From there on, debts must accelerate upward. And that is making some VERY optimistic assumptions!
So, how about doing an Argentina?
Javier Milei’s libertarian experiment in Argentina is still unfolding, but it bears watching because he has attempted to shrink the state and grow the economy simultaneously. What he’s done so far - Cut public spending hard (especially subsidies and state employment). Allowed prices to rise dramatically (short-term inflation spike). Deregulated many sectors. Achieved a fiscal surplus for the first time in 16 years. Now GDP in some quarters (esp. in the private export sector) has ticked upward despite the pain. Today, Argentinian GDP is growing at about 6% p.a., second only to India.
However - Unemployment and poverty have also risen. Argentina has dollarisation pressures as people start to use the US dollar and unique structural issues, caused by years of neglect and corruption. It remains to be seen if this is growth from a low base, or a true turnaround.
But Argentina has shown that constant borrowing can't be covered by growth alone. Sooner or later, interest payments will crowd out everything else. Inflation + Rate Normalisation = Debt Doom Loop.
Unlike in the QE era, governments now have to borrow at higher rates, so refinancing old debt costs more. It's much like taking a new credit card to pay the old one, but with worse terms.
So austerity and stimulus must be targeted, not ideological. Milei slashed entire departments. The UK just tinkers here and there, rarely addressing the structural drivers of debt: pensions, NHS, local authority bailouts, civil service overstaffing, wasteful bureaucracies, etc.
The UK has undergone a deadly mix of political dogma combined with fiddling at the edges of problems. The Tory government wanted to introduce Milton Friedman's concept of a negative tax and got Universal Credit instead (that wastes 40% of its budget on admin). The Labour government needed to raise taxes but could not, so it raised NI rates and killed job growth.
And nobody knows what to do about the UK's national religion - the NHS. The idea of just getting rid of that monstrosity and replacing it with social insurance, similar to every other normal European country, is just unthinkable! So any sensible ideas go into the "Can't do! Won't do!" pile.
This government, like every other UK government before it, remains terrified of real change. So it does what all those other governments did before it - fudging the inflation figures (which we all know the ONS is doing!) and hiding the true scale of modal, median and mean income collapse, whilst pretending that some magic 'headroom' exists. These are all just symptoms of systemic denial.
So what comes first, currency collapse, system collapse, or a government that wakes up and smells the coffee?
