Blob crashed the UK economy: how policy failures and insider influence caused the crisis

Rachel Reeves’s first budget as chancellor has left markets and economists debating whether the plan will stitch Britain’s public finances back together — or unravel them further. The Office for Budget Responsibility (OBR) has flagged weaker growth, higher inflation and rising borrowing in the years ahead, prompting fresh questions about how sustainable the government’s strategy really is.

Economist Liam Halligan, speaking on the spiked podcast with Fraser Myers, warned that bold tax hikes and heavier borrowing could propel the UK into a risky fiscal spiral. He argues Britain’s potential is being hamstrung by policy choices that raise taxes today while stacking debt for tomorrow — a combination that could unsettle investors and households alike.

Why the budget raised alarms across financial markets

The budget introduced by Rachel Reeves included sweeping tax increases that depart from Labour’s earlier promises and coincide with a steep rise in public borrowing. According to the OBR, the fiscal picture now points to slower growth and higher inflation than previously forecast — a worrying mix for a nation with a swollen debt load.

Key fiscal facts to note:

• National debt is approaching 90% of GDP — far above the level when Labour last took office in 1997.
• Tax receipts have been raised by roughly £70 billion since last year, the equivalent of about 9p on the basic income-tax rate.
• Five-year borrowing forecasts have themselves increased by another £70 billion since April, per OBR documents.

Halligan emphasized that while markets are relatively calm now, the underlying assumptions about growth and future consolidation look fragile. He described a political choice to defer the hardest fiscal adjustments until after the next election, meaning short-term spending increases are funded by higher borrowing that must eventually be serviced.

Borrowing now, consolidation later: the political math

Halligan warns that much of the fiscal tightening is scheduled for 2028–2030 — years when growth assumptions are weaker and debt-service costs could be higher. That mismatch, he says, is a gamble: voters receive the benefits today while taxes and cuts are penciled in for the future.

• Short-term stimulus financed by borrowing is visible across departmental budgets.
• Tax rises have been front-loaded in announcements, but some of the revenue gains are not expected immediately.
• Market sensitivity to fiscal credibility may rebound if OBR forecasts are revised downward again.

“There’s a lot of rhetoric about prudence, but the actions tell a different story,” Halligan told Myers, noting that a left-leaning parliamentary cohort and front bench could reinforce spending pressures, not ease them.

Where the next financial shock might come from

Beyond headline borrowing and taxes, Halligan highlighted external and structural risks that could trigger market turmoil.

• Inflation: At around 3.6% and still well above the Bank of England’s 2% goal, UK inflation is an outlier in the G7.
• Oil and energy: The UK imports large volumes of energy and food, making it vulnerable to price swings in global commodities.
• Market sentiment: If investors start to view UK assets as a poor hedge against rising inflation or fiscal slippage, selling pressure could spike long-term yields.

He cautioned that current low oil prices are partly the result of global demand weakness and temporary OPEC politics. Once cartel dynamics shift, oil could rebound, pushing inflation higher and placing fresh pressure on government debt costs.

Triggers investors are watching

• Unexpected spikes in energy prices driven by geopolitical moves or OPEC production decisions.
• Worse-than-expected growth that reduces future tax receipts while interest bills climb.
• Downgrades or fiscal credibility concerns that prompt foreign investors to sell sterling or gilts.

If inflation starts to accelerate again, “shorting” the UK could become a popular speculative trade, Halligan said — a scenario that would amplify the cost of sovereign borrowing.

Public spending: more money, fewer results

Despite rising budgets, public services continue to struggle with productivity and access. Halligan pointed to a growing public sector workforce — roughly a third more civil servants than in 2016 — without evidence of matching gains in output.

Common complaints he cited include slower response times from state agencies and operational breakdowns that affect everyday services. Meanwhile, increased public-sector pay and enhanced benefits have pushed employment costs higher than in the private sector, creating fiscal pressure without clear efficiency improvements.

How public-sector pensions are crowding out local services

One persistent structural drain is the cost of pensions for government employees. Halligan describes the existing arrangements as a legacy system built for a different demographic and economic era, with generous, index-linked payouts that many believe are unsustainable.

Consequences include:

• Rising council bills: a significant portion of local taxation can be consumed by pension liabilities.
• Squeezed services: when funds are diverted to pay accrued pensions, frontline services such as waste collection and planning can falter.
• Perverse incentives: those shaping pension policy often benefit from the system, lowering the political appetite for reform.

“We’re living under a form of pensions imbalance that threatens long-term fiscal flexibility,” Halligan argued, urging a national debate on how to allocate public money more effectively rather than simply increasing spending.

Why more cash hasn’t fixed NHS backlogs and other failures

The debate isn’t just about totals spent but about outcomes. Halligan pointed out that pouring money into services without demanding structural reform will not automatically improve results. The NHS was used as a prime example: higher spending levels have coincided with stubbornly long waiting lists and a growing private market for treatments.

Policy choices that prioritize increased budgets over system redesign, he warned, risk locking in inefficiency and escalating costs without delivering better care or value for taxpayers.

The geopolitical wildcard: OPEC, oil and UK vulnerability

Global energy markets are a decisive factor for UK inflation and, therefore, for the public finances. Halligan stressed that OPEC’s ability to influence supply and prices remains powerful: the cartel controls a large share of proven reserves and can move prices by adjusting quotas.

He noted:

• Current oil prices have been depressed by weak demand and intra-OPEC discipline; that could reverse quickly.
• A substantial oil-price rebound would feed directly into UK inflation because of heavy energy import dependence.
• Higher inflation would raise nominal debt-service costs and could force the Bank of England to adopt tighter policy.

Rising energy prices would therefore magnify the fiscal stress created by higher borrowing and deferred consolidation, increasing the risk that markets reassess the government’s fiscal stance.

Signals to watch in the months ahead

For those monitoring the evolving story, Halligan recommended tracking a set of leading indicators:

• OBR revisions to growth and borrowing assumptions in quarterly updates.
• UK long-term gilt yields and the spread versus other G7 sovereigns.
• Headline and core inflation trends, especially any sustained movement above 3%.
• Global oil prices and statements from major OPEC producers about quota policy.

He said policymakers in Downing Street must be alert to the interaction between domestic fiscal choices and global shocks. Otherwise, a combination of renewed inflation and weakened investor confidence could expose the UK to sharply higher borrowing costs.

Liam Halligan’s interview with Fraser Myers on the spiked podcast expands on each of these risks and explores how political incentives, public-sector structures and external economic shocks could intersect to shape Britain’s financial future.

You might also like:

• Global economic crisis worse than IMF bailout, economists warn
• Reeves budget crisis shows technocrats have failed voters
• Rachel Reeves warns Britain faces a bleak future
• Could Going Dutch Help Curb Britain’s Debt Crisis?
• Cost of living crisis: rising prices force families to cut spending

Robert Johnson

Robert Johnson is a dedicated columnist focusing on political and social debates. With twelve years in editorial writing, he provides nuanced, well‑argued perspectives. His commentaries invite you to form your own views and engage in critical issues.