BRITAIN entered October with another deeply uncomfortable warning about the state of the economy as long-term Government borrowing costs surged through 6 per cent for the first time since 1998.
As Labour prepares another Budget amid fears of tax rises, weakening business confidence and mounting spending commitments, the financial markets have delivered a brutal reminder of one economic truth politicians cannot escape: borrowing money has a price.
The yield on 30-year UK government bonds, known as gilts, climbed as high as 6.029 per cent on Thursday, its highest level since January 1998. Ten-year gilt yields also reached their highest since 2007, while five-year yields climbed to levels last seen in 2008.
It is a grim backdrop for a Labour Government with expensive ambitions and a Chancellor preparing to deliver his first Budget later this month. Money is getting more expensive, mortgages are rising, households face another energy squeeze, businesses are nervous and taxpayers are waiting to discover where Labour will turn next for money.
The sell-off is not solely a British phenomenon of course. Government borrowing costs have risen internationally, with the conflict in the Middle East and elevated energy prices fuelling fears that inflation will remain stubbornly high and interest rates will have to rise again. US Treasury yields have also surged and other major bond markets have been hit.
But Britain has vulnerabilities of its own. Reuters reported that the latest rise in UK borrowing costs was sharper than the equivalent movement in German government bonds, while British borrowing costs have increased more sharply than those of most other European governments since the Middle East conflict began. Analysts have pointed to Britain’s dependence on natural gas and concerns about its fiscal position ahead of the Budget.
Labour cannot control a war thousands of miles away, but governments can be judged on the resilience of the economy when external shocks arrive and on the choices they make in response.
And this Government enters the storm carrying huge spending ambitions, expensive debt, an enormous tax burden and a private sector already asking what might be coming next.
The economic consequences are beginning to reach far beyond the trading floors of the City. Higher gilt yields can feed through into the wider cost of borrowing, affecting mortgages, business finance and ultimately household spending.
Mortgage borrowers are already being squeezed. Average five-year fixed mortgage rates reached 5.95 per cent this week, their highest since October 2023, while average two-year fixed residential rates climbed to 5.94 per cent, their highest since July 2024.
Markets are also pricing in further increases in Bank Rate. Reuters reported that investors expect the Bank of England could raise rates in November or December, with another increase priced in for February.
For millions of homeowners who had hoped the era of punishing mortgage bills was finally beginning to recede, Britain is suddenly talking about interest rate rises again.
There was more gloomy news from the housing market on Thursday. Nationwide figures showed average UK house prices fell by 0.2 per cent in September, while annual house-price growth slowed sharply from 1.6 per cent in August to just 0.8 per cent. Higher mortgage costs, expectations of further interest-rate rises and wider economic uncertainty are all weighing on the market.
Higher borrowing costs squeeze buyers, weaker demand puts pressure on the housing market and uncertainty about what the Chancellor might announce gives families yet another reason to postpone major financial decisions.
Businesses are being squeezed too. The Bank of England’s Financial Policy Committee reported this week that the effective interest rate on new lending to small and medium-sized businesses had risen to 6.61 per cent, while higher energy prices and tighter financial conditions were placing additional pressure on some companies.
And then there is another problem that Labour ignores at its peril: Britain needs its wealth creators.
The country cannot tax its way to prosperity while simultaneously making entrepreneurs, investors and internationally mobile taxpayers wonder whether Britain is still the best place to build businesses, invest their money and live.
Many extremely wealthy people have already decided it is not.
Recent high-profile departures or relocations have included hedge fund billionaire Chris Rokos, steel magnate Lakshmi Mittal and INEOS founder Sir Jim Ratcliffe. Peter Hargreaves, the billionaire co-founder of Hargreaves Lansdown and himself one of Britain’s biggest taxpayers, warned last week that Britain cannot afford to keep losing major taxpayers.
Hargreaves reportedly paid £210million in tax last year. That figure paid for about 9000 nurses. His warning was brutally simple: lose only a handful of taxpayers making contributions on that scale and the Treasury can lose enormous sums of revenue.
There needs to be care with claims of a mass exodus. The latest complete HMRC figures cover 2024-25, before the longer-term impact of the new regime can properly be measured. They showed the combined number of non-domiciled and deemed-domiciled taxpayers falling by around 1,200 to at least 81,900, while their combined tax and National Insurance liabilities actually increased by 9 per cent to £13.6billion. The true effect of subsequent changes will therefore take time to establish.
But the warning signs should hardly be dismissed simply because the people leaving are rich.
These are precisely the people politicians should want competing to bring their businesses, investment and capital to Britain.
Successful entrepreneurs build companies. Companies employ people. Employees pay tax. Businesses buy from suppliers, occupy offices and factories, invest in equipment, train workers and create opportunities for other companies around them.
Driving away a billionaire taxpayer is not a victory if the eventual result is less investment and a smaller tax base. Nor is it merely the super-rich feeling the strain.
Official Office for National Statistics figures show 76,840 businesses closed in Britain between April and June this year, 2 per cent more than during the same quarter of 2025. Closures increased in 11 of the 16 main industrial groups, with agriculture, forestry and fishing recording the largest percentage increase.
For Conservative Post, the deeper concern is the direction in which Government policy risks pushing those numbers.
Why would somebody risk their savings, mortgage their home, employ staff and spend years building a company if success increasingly means wondering which tax the Treasury will target next?
Entrepreneurship depends on risk and reward. Remove too much of the reward while increasing the cost of employing people, borrowing money, buying energy and complying with regulation, and eventually fewer people will decide the risk is worthwhile.
That does not hurt only millionaires.
When a business decides not to expand, an ordinary person’s future job may never be created. When an investor takes capital overseas, the factory, laboratory, technology company or office that capital could have financed may go elsewhere too. When a major taxpayer leaves, the Treasury must either live without the revenue, cut expenditure, borrow more or find somebody else to tax.
This is the fundamental economic reality that the politics of endlessly targeting “the rich” tends to overlook. Governments can set tax rates. They cannot compel internationally mobile entrepreneurs and capital to stay.
Britain should be fighting to attract the world’s most successful entrepreneurs, not giving them reasons to move to Greece, Italy, Switzerland, Dubai or elsewhere.
It should be rolling out the red carpet for people who want to start businesses, create jobs and invest capital. Instead, too many wealth creators are warning that Britain risks becoming an increasingly hostile place in which to succeed.
Meanwhile, Labour’s spending ambitions continue.
Andy Burnham has outlined plans for a National Care Service, greater public control of utilities, increased social housing and changes to the pensions triple lock, while the Government faces demands for spending across already stretched public services.
Every promise ultimately has to be paid for.
Every additional pound borrowed must be financed. Every increase in debt-interest costs consumes money that cannot be spent elsewhere. Every additional tax imposed to close a fiscal gap takes money out of households or businesses. And every policy that discourages investment risks shrinking the economic activity upon which future tax revenues depend.
This is where the economic circle becomes increasingly vicious.
Weak growth creates pressure on the public finances. Ministers seek more revenue. Higher taxes can weaken incentives to invest, employ and expand. Lower investment damages future growth. Weak growth then creates still more pressure on the public finances.
And all the while, debt continues to cost money.
Labour cannot be blamed for every barrel of oil rising in price, every US Treasury bond being sold or every geopolitical crisis erupting around the world. The latest market turmoil is international and the Middle East energy shock is a significant driver.
But Labour can be judged on the economy it is building at home.
The warning lights are difficult to miss.
Thirty-year government borrowing costs have broken 6 per cent.
Mortgage rates are approaching 6 per cent.
House prices fell last month.
Annual house-price growth has halved.
Business borrowing costs have risen.
Tens of thousands of businesses are closing each quarter.
Some major wealth creators and taxpayers have left Britain.
And the Chancellor is preparing a Budget against a backdrop of intense speculation about where the next tax rises could fall.
Britain desperately needs growth, investment, confidence and entrepreneurship. It needs reliable and affordable energy, competitive taxation and a Government that understands the difference between creating wealth and merely redistributing it.
Instead, Labour risks crushing the entrepreneurial spirit it desperately needs to revive the economy.
You cannot tax, borrow and spend your way indefinitely around the basic laws of economics. You cannot continually make it more expensive to employ people and invest while expecting businesses to shrug their shoulders and carry on regardless. And you cannot drive successful people and their capital overseas and assume somebody else will always remain behind to pick up the bill.
The markets are sending Westminster a warning.
Businesses are sending Westminster a warning.
Homeowners are feeling the warning in their mortgage rates.
And some of Britain’s wealth creators are delivering perhaps the starkest warning of all… by packing their bags.
If Labour does not understand what is happening, Britain risks entering a miserable cycle of higher borrowing costs, higher taxes, weaker investment and weaker growth.
That is not a recipe for renewal.
It is a recipe for managed decline.
