We’re advised that authorities debt is spiralling uncontrolled. Commentators scream “fiscal disaster!” and “report borrowing!” However the fact may be very totally different. Excessive authorities debt shouldn’t be an indication of collapse—it is a signal of belief. Individuals and establishments are determined for the protection that solely the federal government can present. Debt shouldn’t be a hazard—it is a deposit facility. Let’s lower by way of the panic and face the information.

That is the audio model:

That is the transcript:

Within the final week, we now have seen financial commentators going into meltdown.

They’re claiming  that authorities debt goes by way of the roof as a result of  extra cash was borrowed in August 2025 than in any earlier August, besides, after all, August 2020, once we had been proper in the midst of the COVID disaster.  And as a consequence, they’re speaking about report borrowing, and panic is all over the place. And they’re suggesting that Rachel Reeves is dealing with a fiscal disaster, and possibly the federal government will go bust. And all of that is full and utter nonsense.

The precise fact is so totally different from what these persons are saying is nearly unbelievable.

Let’s simply set the context.  The federal government spent what it needed to spend in August this yr. It had commitments. It fulfilled its commitments, and folks wished these commitments to be met.

It additionally recorded some long-term liabilities, which had been included on this determine for elevated borrowing, however which will not be settled for a few years, like curiosity owing on a few of its debt. That is a technicality, however price noting.

Within the meantime, tax receipts had been decrease than the markets would’ve hoped for, and that is for one superb motive. Individuals do not need to pay extra tax. They yell and scream in the event that they’re requested to. The federal government is not positive learn how to ask folks to pay extra tax, despite the fact that my  Taxing Wealth Report lays out intimately how they might very simply increase much more tax from the rich on this nation with out ever having to resort to wealth taxation.  The mixture of excessive spending and low tax receipts signifies that commentators are claiming our authorities is on the snapping point.

However the fact is, folks need the federal government to spend. Actually, they need the federal government to spend extra. They need extra to be spent on the  NHS, on colleges, on social care and a terrific deal else. They need the migration backlog to be cleared. They need the local weather disaster to be tackled. They need new housing to be constructed. They need an power transition. They need higher transport techniques.

The fact is that, so far as persons are involved,  the federal government is definitely spending too little, and never an excessive amount of. The general public is demanding state motion, and but on the similar time, they don’t seem to be paying sufficient to supposedly steadiness the books.

However let’s stand again for a second. The federal government is borrowing as a result of it says it has to, to make that equation steadiness, though that factually shouldn’t be true: it does not should,  it solely borrows by conference. However the Financial institution of England is, on the similar time  that the federal government could be borrowing effectively in extra of £100 billion this yr, saying that markets are literally so hungry for presidency debt that they will promote again into these markets over the following 12 months  at the very least £70 billion price of bonds which it acquired throughout the 2008 monetary disaster or the COVID disaster.

In different phrases, they assume that the marketplace for authorities bonds is far greater than that required to fill the hole between authorities revenue and expenditure.

So what’s the message that markets are actually sending?

They are not saying that the federal government is in a large number.

They are not saying they assume that the federal government is in meltdown.

They’re truly saying one thing extremely totally different.

They’re saying, “Can we now have some extra debt, please?”

That’s the message that markets are sending.

They’re prepared to purchase virtually as many bonds as the federal government can handle to push into their arms, albeit at a value of excessive rates of interest, which I would favor had been a lot decrease.

And that is unsurprising.  Authorities bonds are the one secure place for a lot of establishments to place their cash.  They will see what is going on on in the remainder of the markets. They will see extreme inventory market valuations at, or very near, report highs of all time.

They will see the speculative bubble that’s constructing.

They will anticipate the truth that there might be a burst.

They need someplace to go the place they will shield funds on behalf of the people who find themselves saving with them. And the one place the place they will do that’s with the federal government. The federal government is the one and solely secure place for deposits proper now.

And it is not simply the institutional traders, the pension funds, the life insurance coverage corporations, the banks and so forth who’re seeing that they want authorities bonds. There’s one thing else occurring as effectively, which signifies that different persons are additionally shedding religion within the markets and are searching for safety.  And that’s, there is a flood of cash into money, Particular person Financial savings Accounts, or ISAs, this yr.

It is thought that £103 billion, a report sum for a yr, has been put into money ISAs to this point this yr, and that is as a result of folks – people – are additionally searching for security.

ISAs present security in two methods.  One, they do not require tax to be paid and folks like that, as a result of that may imply security from a tax investigation.  And secondly, it is offering security as a result of most individuals who’ve money ISAs ensure that they’ve not more than £85,000 in anybody financial savings establishment and subsequently,  they’re relying upon the federal government’s assure that they’ll at all times have their financial savings returned to them if something goes flawed. They do not get that assure except the cash is in money.

Savers – particular person savers – and savers in establishments are sending out the identical message because of this. What they’re saying is “We belief the federal government and we do not belief very many different issues in these monetary markets.” The instability of markets, the overvaluation of markets, and the uncertainty – all of these imply that persons are fleeing for security, and the federal government is the supplier of actual safety within the financial world by which we now dwell.

However what meaning is, there isn’t any disaster with the federal government’s funds. Actually, persons are saying, “Please, run greater deficits, if meaning there are extra bonds for us to purchase.”

The disaster that we have got shouldn’t be of presidency funds. The disaster is of a lack of knowledge by commentators who cannot stand again and decide up the messages which might be actually being despatched by people and market gamers who’re saying, “Now we have confidence within the authorities and no person else.”

They need debt, and so they need the federal government’s ensures, and that is the actual level that I am making.  Excessive authorities debt truly is equal to excessive public belief within the authorities. They could not exist with out one another.

There isn’t any motive why any individual has to purchase authorities bonds, however they’re. They’re shopping for each bond that’s out there. So let’s cease the panic headlines. They’re simply noise – folks and establishments are voting with their cash. And we needs to be following the cash. We needs to be taking word.

There are some very clear conclusions.  Deficits on this sense are usually not failures. They’re truly enabling the deposit-taking that folks need to make with the federal government. And that is as a result of folks perceive implicitly, whether or not they can say it or not,  that the federal government is the most secure banker within the UK; the borrower of final resort, to make use of financial jargon.  As a result of, after all, so far as a financial institution is anxious, a deposit is a mortgage that they take. They borrow different folks’s cash after they take a deposit.

Excessive debt is subsequently proof of belief and never of collapse. And subsequently, we’d like greater deficits and never smaller ones  as a result of in any other case we’re not going to fulfill market demand for presidency bonds.

However what that actually means is that we needs to be speaking about what authorities debt actually is. It is only a secure deposit facility.

And it is time that we ship all these market commentators who’re saying, “We will hell in a handcart,” once we’re not, again to the place they belong. I do not know the place that’s, however we do not need them on our televisions. We do not want them in our media. We do not even want them in our social media, as a result of they’re speaking nonsense.

Authorities funds are working as folks need them to as a result of they’re taking the deposits that folks need to place in locations of safety, which the federal government is guaranteeing might be repaid to them, and that is what issues.

Taking additional motion

If you wish to write a letter to your MP on the problems raised on this weblog submit, there’s a ChatGPT immediate to help you in doing so, with full directions, right here.

One phrase of warning, although: please guarantee you have got the right MP. ChatGPT can get it flawed.

Feedback 

When commenting, please pay attention to this weblog’s remark coverage, which is offered right here. Contravening this coverage will lead to feedback being deleted earlier than or after preliminary publication on the editor’s sole discretion and with out rationalization being required or provided.