28-06-2025
Prepare for economic collapse: last week the 2026 British financial crisis became inevitable
Make a note of last Friday's date: June 27 2025. It was the day that Britain's coming financial crisis became inescapable.
In backing away from his attempt to slow, however feebly, the rise in benefits spending, Sir Keir Starmer was signalling to the world that Labour would never bring Britain's budget back into balance.
The storm might break in 2026 or 2027 or even later. Labour politicians will do everything in their power to postpone the reckoning. But debts are not just paper liabilities; they end up being recovered.
We have all just watched a hopeless and hapless PM throw away his majority and, with it, any hope of reform. And the bond vigilantes saw what we saw.
What were Labour's rebels thinking? Their constituents will be hammered when the money runs out, when salaries and savings lose their value and imports become luxuries. They will be swept from office just as surely as were Greece's socialist MPs after the euro crisis.
Do they even believe their own claims? Do they truly imagine that they are shielding the vulnerable? Do they picture themselves posed heroically over some wheelchair-bound child, fending off the ghost of Margaret Thatcher?
I doubt it. They have, after all, seen the numbers. They know that one working-age adult in ten is now on benefits. They know that the number is rising, with a thousand people a day applying for Personal Independence Payments (PIP) – a rise which, tellingly, is not mirrored in any indices of sickness.
They understand how PIP works. They know it can be accessed on grounds of, for example, anxiety, alcoholism, or ADHD (there are 50,000 claimants in this last category). They are aware that most new claims are for mental health conditions that are hard to verify. They will have seen the online videos explaining how to make a successful claim – you get this many points for saying that you have trouble getting dressed, this many for saying that you can't sit still, and so on.
They might even be dimly acquainted with the age breakdown of the claimants. The fastest rise is among 25- to 34-year-olds, an incredible increase of 69 per cent in just five years. Incredible in every sense. Such a sudden and cataclysmic rise in disability would be visible on every street. Do you think Labour MPs, who meet PIP claimants in their surgeries, genuinely suppose that they are all incapacitated to the point of being unable to earn a living?
No, this was never about justice for people with disabilities – still less about justice for taxpayers. Indeed, the most immediate consequence of guaranteeing existing but not future claims is to deter people from coming off benefits, knowing that there will be a lower rate if they go back.
What we are seeing is the lowest and most cynical short-termism from MPs who want to keep their seats. In parts of urban Britain, Labour's election strategy involves distributing postal votes to welfare claimants along with the warnings that the Tories are coming for their benefits.
From a purely partisan point of view, it suits Labour MPs to have constituents who claim state handouts. Sure, handouts are debilitating for the recipients and burdensome for the contributors; but the politicians who arrange the transfer often get an electoral reward.
Labour MPs' WhatsApp groups have been pulsing with links to a study by the Disability Poverty Campaign Group which shows that, in nearly 200 Labour constituencies, the number of people claiming PIP is higher than the parliamentary majority. Among the MPs who are, so to speak, dependent on dependents, are Shabana Mahmood, Wes Streeting and Jess Phillips.
You have to spend time around politicians to understand the extent to which such surveys strike icy daggers into their hearts. Never mind the moral case for self-reliance; never mind the debts we are loading onto our children. What looms in the feverish fears of MPs is having to mount the stage in their local sports centre and make a concession speech.
Yet, paradoxically, they are making their defeat almost certain. The British state spends an unbelievable £52 billion a year on disability and incapacity benefits. According to the DWP, that figure will rise to £70 billion at today's prices by the end of the present Parliament.
The changes that were first proposed would not have reversed that rise. They would not even meaningfully have slowed it. They would have shaved only £5 billion from the scheduled increase.
In the event, that tiny dent was unacceptable to Labour MPs, fresh from running charities and NGOs, unused to hard decisions, unprepared for unpopularity, uninterested in economic reality. Asked in a BBC interview how she would make up the shortfall, one of the rebel leaders, Meg Hillier, replied airily that that was up to the Chancellor.
In truth, the Chancellor's decision has been made for her. Labour backbenchers would rather pull the sky down on our heads than risk a bad local headline. Labour Whips, knowing that the only thing they have going for them is the split between the two Right-wing parties, will do anything to avoid a similar split on the Left.
Labour is thus incapable of reducing expenditure. If it could not stick to its commitments on reducing the winter fuel allowance, capping child benefit or slowing the rise in PIP, it is plainly not going to attempt a radical overhaul of benefits.
Without spending cuts, two options remain: yet higher taxes or yet more borrowing. Both damage growth – or at least they would if there were any growth to damage. In an economy that is flatlining (at least when we strip out the impact of immigration and consider GDP per head) they will topple us into recession.
Which brings us back to the coming gilt strike. Who knows what the trigger will be? It might occur overseas. When bond markets turn, they are not interested in geography, justice or moral hazard. Rather, they look coldly for the weakest wildebeest in the herd, the spavined, limping laggard. And among major economies, that is Britain.
Our politicians are shockingly complacent when it comes to the possibility of a full-scale financial crisis. We haven't had a proper one since 1976 and, frankly, even that was tame by global standards. Yes, the markets stepped in to punish Labour's profligacy, short-termism and cowardice. But our national debt back then was 47 per cent of GDP and falling; now it is 96 per cent and rising.
Spending a chunk of my teenage years in South America in the 1980s, I am perhaps more alive than some of my countrymen to what a debt crisis looks like. I have seen, not just the inflation, the unemployment, the poverty – but the consequent lurch into authoritarianism.
If twentieth-century South America seems too exotic, cast your mind back instead to the euro crisis. Ireland took it best, gulping down its medicine and making serious economies. Public sector salaries were reduced in real terms and there were rounds of redundancies. From cabinet ministers to claimants of child benefit, everyone had to take a cut.
I suspect that, under Labour, our crisis will be more Greek than Irish. In other words, we will continue to vote 'against the cuts'. Our politicians will raise taxes in ways that would have made Charles I blush. We will elect parties that promise to 'end austerity'. And, as a result, we will end up having to make deeper cuts.
And Labour? Labour will go the way of Greece's PASOK, as voters blame it for having failed to make softer savings while there was still time. It is true that voters themselves are in no mood for such savings yet; but good luck with using that as an excuse.
Starmer might manage to limp on until the next election, a prisoner of the 400 standard-issue big-government Labour MPs who want him to stick to the Corbynite policies on which he was elected party leader. Either way, Labour itself is finished. Last week will be remembered as the moment when its MPs took the decision to check out.
