31 May 2026
Britain on the Brink: Liam Halligan on Debt, Energy and the Coming Crisis
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1. The Debt Emergency
Britain's public finances are in systemic distress. In February 2026 alone, the government borrowed £14.3 billion, of which £13 billion went on debt interest payments. Long-term gilt yields are now at their highest levels since the aftermath of the 2008 financial crisis, even as the Bank of England cuts its policy rate.
This unusual divergence suggests that financial markets are becoming increasingly sceptical about Britain's ability to control inflation and stabilise its finances. The UK now pays more to borrow than several countries once regarded as financially fragile, including Greece and Morocco. In this environment, the judgement of global bond markets matters more than decisions made by Threadneedle Street.
Glossary
Gilt – A UK government bond used to finance public borrowing.
Yield – The return demanded by investors for lending money.
Debt interest – The cost of servicing existing government debt.
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2. The Political Class Has Lost Touch with Markets
When Labour entered office in 1997, memories of Britain's 1976 IMF crisis remained vivid. Senior figures ensured that experienced market practitioners remained close to government decision-making.
According to Halligan, that instinct has largely disappeared. He argues that today's political leadership contains too few people with practical experience of running businesses, managing investment risk or responding to market pressures. The result is a political culture that struggles to understand how investors react to fiscal and economic policy.
The deeper concern is not any individual minister but a wider political and media establishment that appears unable to discuss reducing the growth of public spending without treating it as politically impossible.
Glossary
Fiscal policy – Government decisions on taxation and spending.
Market confidence – Investor belief that a government can manage its finances responsibly.
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3. The Tax Burden Reaches a Modern Peak
Britain's overall tax burden has reached its highest level in roughly three-quarters of a century.
Recent measures, including higher employer National Insurance Contributions, reduced tax thresholds, changes to agricultural and business property relief, and penalties associated with electric vehicle mandates, have increased costs across the economy.
Critics argue that these measures are placing particular strain on small and medium-sized enterprises while simultaneously reducing opportunities for younger workers. Youth unemployment has risen sharply, and lower employment thresholds mean that businesses incur payroll taxes much earlier than before.
The concern is that policies designed to raise revenue may ultimately reduce economic activity and weaken the tax base itself.
Glossary
SME – Small and medium-sized enterprise.
National Insurance – Payroll tax used to fund state benefits and public services.
Tax base – The economic activity from which governments collect tax revenue.
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4. The Ghost of 1976
Britain's IMF crisis of 1976 remains one of the most important turning points in modern British economic history.
Facing a collapse in confidence, the government was forced to seek external financial support. The IMF required spending reductions and economic reforms in exchange for assistance. The political damage was profound and helped reshape British politics for a generation.
Today's circumstances differ, but Halligan sees an important parallel. The constraint no longer comes from formal international institutions but from global bond markets. When governments ignore financial realities, investors eventually impose discipline through higher borrowing costs.
Similar dynamics have occurred in countries such as Ireland, Italy and Greece during the past two decades.
Glossary
IMF – International Monetary Fund, a lender of last resort for sovereign states.
Sovereign debt – Money borrowed by national governments.
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5. Index-Linked Debt: Britain's Hidden Vulnerability
One of Britain's least discussed financial vulnerabilities is the unusually large share of index-linked government debt.
About a quarter to a third of UK government borrowing is linked directly to inflation. This proportion is significantly higher than in most advanced economies.
The consequence is a dangerous feedback loop. When inflation rises, debt servicing costs rise automatically. Higher interest costs require additional borrowing, which can further undermine confidence in public finances.
Compounding the problem is the changing ownership of British government debt. Domestic pension funds, once major long-term holders of gilts, play a smaller role today. Increasingly, ownership rests with international investors and financial institutions whose commitment depends entirely on returns rather than national interest.
Glossary
Index-linked debt – Bonds whose payments rise with inflation.
Feedback loop – A process in which an effect reinforces its original cause.
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6. Energy Policy and Economic Competitiveness
Energy remains central to Britain's economic challenges.
The UK imports significant quantities of oil and gas despite possessing substantial North Sea resources. Gas storage capacity is limited compared with major European economies, leaving the country more exposed to supply disruptions.
Meanwhile, North Sea tax revenues have fallen dramatically as investment has weakened. Critics argue that high windfall taxes discouraged new development, reducing future production and government income simultaneously.
The automotive sector faces additional pressure from electric vehicle mandates. Manufacturers must balance regulatory requirements, consumer demand and international competition at a time when the industry is already undergoing significant structural change.
The broader criticism is that energy policy has become disconnected from economic competitiveness and energy security.
Glossary
Windfall tax – An additional tax on unexpectedly high profits.
Energy security – Reliable access to affordable energy supplies.
ZEV mandate – Regulations requiring a growing proportion of vehicle sales to be zero-emission.
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7. The Strait of Hormuz and the External Shock
Around one-fifth of global oil and gas trade passes through the Strait of Hormuz, making it one of the world's most strategically important maritime chokepoints.
Any prolonged disruption affects not only energy prices but also fertiliser production, transportation costs and food prices. Because supply chains operate with delays, the economic consequences often emerge weeks or months after the initial disruption.
Britain enters such a scenario from a position of relative vulnerability due to its dependence on imported energy and limited storage capacity.
The concern is that an external energy shock could arrive just as public finances and economic growth are already under pressure.
Glossary
Strait of Hormuz – Narrow waterway connecting the Persian Gulf to global shipping routes.
Supply shock – A sudden reduction in the availability of goods or resources.
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8. Is There a Way Out?
Halligan's proposed solutions begin with spending restraint rather than immediate tax reductions.
He argues that restoring fiscal credibility requires demonstrating control over government expenditure before attempting significant tax cuts. Other proposals include raising the VAT threshold, reducing regulatory burdens on smaller firms, encouraging investment, and making more productive use of publicly owned land.
Whether such reforms are politically achievable remains uncertain. Halligan's central argument is that meaningful change is unlikely until financial markets force a reassessment of current policies.
History suggests that governments often postpone difficult decisions until external pressures leave them with no alternative.
Glossary
VAT threshold – The turnover level at which businesses must register for Value Added Tax.
Fiscal credibility – Market confidence in a government's financial management.
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9. The Consent Problem
Beneath the economic arguments lies a deeper political concern.
Modern democracies depend not only on elections but also on public trust that institutions are broadly competent and responsive. When citizens repeatedly experience financial crises, declining living standards and policy failures, confidence gradually erodes.
The growing support for insurgent political movements across the political spectrum may reflect less a shift in ideology than a search for alternatives. Voters who feel ignored by established parties often look elsewhere, regardless of whether those alternatives ultimately succeed.
Economic indicators can measure debt, inflation and growth. Public consent is harder to quantify. Yet history suggests it may be the most important variable of all.
Glossary
Political consent – Public acceptance of the legitimacy and effectiveness of governing institutions.
Insurgent parties – Political movements challenging established parties and institutions.
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References
Liam Halligan interview and commentary, 2026.
UK Office for National Statistics (ONS)
UK Debt Management Office (DMO)
Bank of England
International Monetary Fund (IMF)
UK Office for Budget Responsibility (OBR)
