Britain is paying a “moron premium”, which has pushed up the cost of borrowing since the Liz Truss mini budget, the chancellor has said. It came as John Healey warned that the UK faces more “hard decisions” about its spending priorities in the coming years, after delivering his first Budget on Wednesday . Asked why Britain was paying more to borrow than Greece, Mr Healey told the BBC: “Well first of all the best economic policy for Britain would be a peace settlement in the Middle East and an end to the Iran war, and we’re working where we can to try and support that.
“Secondly, it’s certainly true that the UK’s borrowing costs, since Liz Truss’s economic budget crashed the economy and collapsed confidence in Britain, we’ve been paying a premium that I’m afraid the markets call a moron premium. “And part of what the world has been facing has been an increase in borrowing costs for all governments, and that’s gone up for all governments.” John Healey said his first Budget was ‘significant’ (House of Commons/PA Wire) (PA Wire) Ms Truss sparked gilt market freefall and a run on sterling after introducing unfunded tax cuts in her 2022 mini-Budget. Mr Healey also warned that major departmental spending cuts are coming down the line to pay for the government’s policies at next year’s spending review.
But he hit back against accusations his first budget was too modest, saying: “I’d fundamentally contest that this is not a significant Budget.” But Kathleen Brooks, research director at trading and investment platform XTB argued that former Labour chancellor Rachel Reeves also added to the so-called “moron premium”. She said: “Britain's 'moron' premium has indeed been rising since Liz Truss's budget, but Rachel Reeves also added to it, with her large tax rises and boost to public spending. “Cast your mind back to 2025, and UK yields jumped due to fears Reeves would be sacked, and the market was concerned about her potential replacement.
“The fact that Healey shifted the tone of the Budget yesterday towards growth and away from benefits is positive for the bond market, and we have seen a moderate recovery in UK Gilts since the budget was announced. “However, the markets will soon look through his talk, and unless the chancellor is serious about cutting the benefits bill then bond yields will remain elevated.” Tory leader Kemi Badenoch said the Budget was “not good enough, not strong enough, not bold enough”, while Reform UK’s Treasury spokesman Robert Jenrick described it as a “nothing burger”. The influential Institute for Fiscal Studies (IFS) think tank said the Budget’s “raft of fiddly measures” would do little to boost growth and warned it delayed tough decisions, and the left-leaning Resolution Foundation think tank said Mr Healey had “spread the jam thin”.
But the chancellor insisted it included “some big decisions”, pointing to energy reforms including offering millions of households £100 to help with soaring energy bills, as well as defence spending. In Wednesday’s speech in the Commons, he committed to spending 3 per cent of economic output on defence by 2030, and to “fully funding” the £4.7 billion black hole in the defence investment plan (Dip) left by Sir Keir Starmer. The Dip shortfall will be funded “through reprioritisation of capital budgets”, according to the Budget document.
Departments across government will be asked to reduce their capital budgets by 1 per cent each between 2027-28 and 2029-30 to raise some £3 billion. The remaining £1.7 billion shortfall will be made up from an “unallocated contingency in the Treasury’s capital reserve”, the Budget said. In a round of post-Budget broadcast interviews, Mr Healey told Good Morning Britain that funding the Dip “involved hard choices, it’s reprioritising within government”.
And he signalled that departments would have to further slash spending to pay for choices made at the spending review next year. He told Bloomberg: “My Cabinet colleagues are demonstrating that they can also exert fiscal discipline and spending control, and we will take that into the spending review. “But the spending review will be framed by the priorities that we set in the 10-year plan for Britain, that’s as it should be.
“Hard decisions about the top priorities for Britain in the years to come, judgments that then follow about how we fund them.” In the IFS initial response to the fiscal statement, director Helen Miller said: “The plan to reduce borrowing has been pushed back. “This Budget has a raft of fiddly measures but very little that will move the dial on growth.” She added: “Whether reductions in borrowing can actually be delivered depends heavily on public service spending plans, where growth is set to slow sharply after this year. “History warns us to be sceptical of tight spending plans in later years of the forecast.” Meanwhile, Ruth Curtice, chief executive of the Resolution Foundation, which has been influential on Labour’s thinking, said: “Faced with a tough backdrop amid global economic turmoil, the chancellor delivered a scattergun Budget that did little to address the sharp challenges facing Britain.
“Cost-of-living support is being spread far too thinly and will leave even those families receiving help facing higher energy bills than they did during the last energy price shock.”
Source: The Independent
