Latest news with #governmentDebt
Times
25-06-2025
- Business
- Times
The government must push through its welfare bill at all costs
Few matters are so important that a government should risk its future to get its way. The bill to reform the welfare system is one such. Rebel Labour MPs are threatening to kill the bill in a vote next week. The government should do its utmost to stop that happening, even if it means turning the issue into a vote of confidence. Britain's economic future depends on welfare reform. Government debt is the size of the entire economy. With growth stagnant and the war in Ukraine forcing unexpected increases in the defence budget, getting a grip on public spending is essential. The most obvious candidate for cuts is welfare expenditure. Spending on sickness benefits has grown from less than £50 billion a year before the pandemic to £80 billion now. The government's bill would make it harder to access personal independence payments and would reduce the higher level of incapacity benefit. Even after those changes, the cost of sickness benefits is expected to reach £98 billion by 2030. Reasonable people might therefore conclude that the main problem with the government's plan is that it does not go far enough. However, 108 Labour MPs, including 10 select committee chairs, regard these modest economies as excessive. They have signed an amendment which would, in effect, sabotage the bill. Privately, a dozen members of the government have threatened to resign over the proposed cuts. Despite the government's large parliamentary majority, the revolt is big enough to defeat the proposed legislation. Rebels have been emboldened by the U-turn which the government performed earlier this month when it rowed back on an intended cut to pensioners' winter fuel payments. If the government caved on that, surely they can persuade it to back down on this? • Looming welfare rebellion is a battle Starmer can't afford to lose But the benefits bill is far more important than winter fuel, and not just in monetary terms. It represents the most serious attempt yet by ministers to rein in spending. If a bill as modest as this cannot get through parliament, there is no hope of getting the public finances under control. The bond market will be watching the bill's progress closely. Britain's reputation for financial management is already poor enough that the government pays 4.5 per cent on its debt, compared with Germany's 2.5 per cent and France's 3.3 per cent. Further evidence of fiscal irresponsibility could trigger another rise, which would push up interest costs further still. At £108 billion per year, the government already spends about twice as much on debt interest as it does on defence. Neither the government nor the country can afford to see the welfare reform bill fall. If Sir Keir Starmer performs another U-turn or loses the vote, his credibility, already weakened, will be destroyed. If borrowing rates rise further, Britain's finances will be further destabilised. • Welfare U-turns may jeopardise Rachel Reeves's fiscal rules An opposition that placed the country above political advantage would vote for the planned cuts. Kemi Badenoch, the Conservative leader, has promised to back the bill, but only if the prime minister promises in the Commons to levy no new taxes in the autumn, and to cut the welfare budget rather than merely restrict its growth. Given this heavily-qualified offer, Sir Keir must use this week to bring his rebels to heel. To do so, he must rediscover the ruthlessness he demonstrated before the election when he purged Labour's candidates list of left-wingers, and when he suspended seven MPs for opposing his plan to keep the two-child benefit cap. He should make it clear that he is prepared to turn the vote on the benefits bill into one of confidence in his government. That is the nuclear option: if he lost, an election would be called. This bill is not just a tweak to the welfare system. The country's future is at stake. Sir Keir must make it clear to the rebels that for Labour, and for Britain, this is make or break.
Reuters
09-06-2025
- Business
- Reuters
Rising rates could affect Japan's spending plans, PM Ishiba says
TOKYO, June 9 (Reuters) - Japan must be aware that rising interest rates would push up the government's debt-financing costs and affect its spending plans, Prime Minister Shigeru Ishiba said on Monday. "Japan is shifting to a phase where interest rates rise as a trend," Ishiba told parliament. "Japan's debt-to-gross domestic product ratio is high. When interest rates rise, the cost of funding government debt increases. That could weigh on spending," he said, calling on the need to ensure the government maintains public and market trust in its finances.
Fox News
30-05-2025
- Business
- Fox News
Invisible tax: Government debt is crushing your finances
Mortgage rates rose again this week, with the average 30-year fixed rate climbing past 6.8%. That's not just a post-pandemic hangover; it's a warning sign. Behind the scenes, rising government debt is putting steady upward pressure on borrowing costs. If your mortgage, car loan, or credit card payments are more expensive than they were a few years ago, you're not alone — and despite what you may have heard, it's not just because of inflation or Federal Reserve policy. The surge in federal borrowing is helping inflate interest rates across the board. If government debt had stayed at 2015 levels, the typical family could be paying $222 less per month on their mortgage. Go back to 2005 debt levels and the number jumps to $536. That's real money disappearing from household budgets not because of the jump in home prices, but because Washington can't stop borrowing. For years, economists puzzled over why interest rates kept falling. Aging populations, slower productivity, and foreign demand for American debt were all cited as reasons. One result was that Uncle Sam took advantage and racked up larger deficits and debt. After all, refinancing was affordable at low rates. Another was that Americans got used to lower monthly mortgage payments, auto loans, and other interest rate-related expenses. Now, we're grappling with interest rates that have surged and stayed stubbornly high. The change followed a torrent of unfunded federal spending in 2020 and especially 2021 which exploded the deficit, shook investor confidence in America's long-term fiscal stability, and caused bond markets to react to policymakers' fiscal bravado. My new research for the Mercatus Center at George Mason University, along with a growing body of economic literature, shows the debt itself is pushing up long-term interest rates — and by more than some experts are willing to admit. While broader economic changes and policy decisions also play roles, this particular problem is too big to ignore. Over time, as trillions of dollars in debt compound, the Treasury shells out hundreds of billions more in interest payments. It's not just a problem for Washington's balance sheet. It's a problem for yours. Economists have a term for what's happening: "crowding out." When the government borrows more, it competes with private borrowers for capital. And when two consumers want the same thing, the price usually goes up — in this case, the price of borrowing (interest rates). All kinds of important things become more expensive: mortgage payments, car loans, student loans, credit card debt. These are not abstract concerns. They determine whether plenty of families can afford to buy a home, send someone to college or buy a new car or truck. They determine whether someone can start or expand a business and provide more people with jobs. Take housing. Mortgage rates are now hovering near their highest levels in over 20 years. That's not because lumber or labor costs spiked, but because of the effects of federal borrowing. Student loan interest rates are tied to Treasury yields, which means college graduates are now repaying debt at the highest rates in almost two decades. Auto loan rates are rising too, pricing out lower-income consumers. For Americans with credit card debt (almost half of U.S. households carry a balance) the average interest rate is now around 20%, driven in part by the same upward pressure caused by growing federal debt. These debt-driven rate increases are an invisible tax on all of us. Families feel the squeeze every month. Businesses delay investments. Budding entrepreneurs face higher hurdles. Why aren't more economists talking about the problem? It's complicated. The Congressional Budget Office (CBO), for example, significantly underestimates the effect. Its latest projections assume long-term interest rates will stabilize at lower levels even as government debt as a share of the economy grows. But if debt pushes rates up more than the CBO predicts — as most empirical studies now show — then its rosy forecasts won't reflect how much the federal government will pay just in interest. Beyond our own households, there are consequences for the whole economy and government. Higher interest costs mean less money for education, infrastructure, or tax relief. They increase the risk of a debt spiral in which interest payments themselves become the fastest-growing part of the budget. Most people understand that the federal government's borrowing binge can't go on forever, and that it will burden future generations of taxpayers. But if you're between the ages of 19 and 99, the tax is probably already hitting you in some way each and every month. The cost of inaction isn't just abstract and long-term, it's concrete and already being felt. Just check your mortgage statement.
