Andy Burnham, Can You Hear Me?

The tale is told that, in the moment of Britain’s greatest peril, the ghost of Sir Francis Drake himself will rise from the grave, take his place at the helm of the Golden Hinde, and sail out to protect the realm. The more cynical among the readership might question what held him back on D-Day, but I reckon he knew we had that covered on our own. Man Group’s London offices sit directly across from where the Hinde is berthed, and in recent months I find myself glancing over, hopefully, for any apparition. The state of the nation’s finances and political stability seem to be, if some segments of the commentariat are to be believed, in mortal peril. But how bad is it really? And what could be done to change the discourse into a more hopeful trajectory? Once more unto the breach, dear friends.

Over the last decade, the willingness of creditors to lend to the British state has diminished, at least in so far as can be imputed from the cost of borrowing. Ten years ago, the UK was middle of the pack in terms of its sovereign yield, relative to its large developed market (DM) peers. Today it is in joint first place, alongside Australia. Figure 1 shows the change in the 10-year yield to maturity (YTM) over the last decade, and illustrates how the UK has, so far, been the higher-for-longer rate world’s poster child.

Figure 1: Change in the 10-year yield over last ten years

Past performance is not indicative of future results. This analysis is based on our research and is intended for illustrative use based on considerations listed in this paper and should not be construed as a recommendation and should not be relied on. Source: Bloomberg. Date range: July 2016 – July 2026

Problems loading this infographic? - Please click here

To what extent is this justified? Britain’s current indebtedness is unremarkable by the standards of its own history. Figure 2 shows the UK’s debt-to-GDP (gross domestic product) over the last two and a quarter centuries. The current reading of 100% is only slightly above the long-term average (95%) and miles below the peaks coming out of the Napoleonic wars (200%) and the two world wars (250%).

Figure 2: UK government debt as % of GDP

Source: Bank of England. Date range: 1700 - 2025

Problems loading this infographic? - Please click here

Cross-sectionally too, the UK’s leverage hardly makes for a horror film. Figure 3 shows total non-financial credit as a percentage of GDP, across major Western economies. I show total borrowing here (government, corporate and household) as, in my view, that gives the more complete picture. But it doesn’t really matter which segment you want to pick, or whose numbers you want to use,¹ the UK never looks like an indebtedness outlier, and if anything is closer to the under-levered extreme.

Figure 3: UK total debt as % of GDP – present, vs other countries as at Q4 2025

Source: Bank of International Settlements. Data as at Q4 2025

Problems loading this infographic? - Please click here

Stock versus flow is one of those arcane financial debates that gets people curiously animated. Diplomat that I am, I tend to choose a middle way – they’re both important, and on the latter – in other words the size of the deficit flow rather than the debt stock – there is more of a case for the UK sitting in the naughty corner. Figure 4 shows the history of the UK budget deficit. Prior to the Global Financial Crisis (GFC) there is a pattern of, blow the deficit out to fight a war, or neutralise a crisis, and then quickly bring it back to neutral once it was over. The world’s a volatile place today, no doubt. But we are not fighting a war, at least explicitly, and yet the UK are running deficits which, once upon a time, Pitt the Younger would have considered sufficient to contain the Corsican Ogre.

Figure 4: UK historic budget deficit

Problems loading this infographic? - Please click here

Figure 4.1: Key of historical events annotated above

Problems loading this infographic? - Please click here

Source: Bank of England, Finaeon. Date range: 1700-2025

That being said, the line does look to be going in the right direction. The infamous fiscal rules seem as robust as ever. In one telling, Liz Truss locked in orthodoxy for both the left and the right, for a generation. As a wise man once said, “it’s the economy, stupid”.

Moreover, relative to other geographies, the UK’s position might look bad but not apocalyptic. Figure 5 shows the budget balance split by primary deficit, and interest cost, averaged over the last ten years. The fuchsia circles show the primary position that would have been required to stabilise the total leverage ratio, assuming realised interest cost. The light green circles are the same, but assuming today’s marginal interest cost (proxied with the current 10-year gilt yield). Clearly the UK is no cover girl, with both primary and total deficits at the bottom end of the sample, and far from debt-stock stabilisation (as shown in Figure 6). But neither is it Quasimodo. You could make a credible case that all of France, Japan and the US look worse.

Figure 5: Last 10 years realised average primary and total deficits, and implied debt stabilisation levels

Problems loading this infographic? - Please click here

Figure 6: Gap between actual primary deficits and debt stabilisation levels (i.e. difference between the dark blue bars and each circle in Figure 5)

Problems loading this infographic? - Please click here

Source: OBR, Bloomberg, Man Group calculations. Date range: 2016 – 2025. Negative value means primary balance is too loose and debt is rising.

So far, then, there’s not an obvious smoking gun as to why gilt yields should have moved so much ahead of the pack, nor why some segments of the commentariat are so breathlessly freaking out. There are, however, a couple of lenses which put the UK in a league of its own, and not in the positive sense. Figure 7 shows, for the same 10-year period, annualised inflation and real growth, complete with statistically spurious line of best fit. The UK, while normal in growth terms, has no equal in terms of price rises. I’ll leave to one side the debate around whether this is a function of having a heating bill overly tied to the gas price, post-Brexit frictions or an inflexible labour market. Suffice to say that its extent has surprised the market, and likely led to demand for more yield compensation. Moreover, inflation is particularly important to the gilt market, given that around a quarter of the UK’s public liabilities are inflation linked. Even the highest of the peers is less than half of this proportion.

Figure 7: Annualised real GDP growth and inflation, selected countries, last 10 years

Source: Bloomberg. Date range: 2016 - 2025

Problems loading this infographic? - Please click here

The components of a bond yield are trend growth, inflation expectation and a term premium. The latter compensates you for uncertainty in the pathway of interest rates.² Although there’s no empirical way to measure uncertainty, it does seem likely that the UK has had more of it. Figure 8 is a cliché, but does make the point that continuity behind the levers of power has not been a core competency.

Figure 8: Heads of government, last ten years

Source: Man Group. Date range 2016 – 2026.

Problems loading this infographic? - Please click here

Advice for Andy: stay in the job. Change your mind as little as possible. Engender the kind of stable continuity that would give investors a clearer sight of the rate pathway and thereby push down the term premium. Aim to bring inflation down to the bottom of the range, rather than the top. In the short term, he probably doesn’t have a huge amount of agency here. More control over the deficit. Which as we’ve seen, while it may be flattered by comparison, is clearly not in a good place in the absolute sense.

But are there easy wins here? On the revenues side, not really, or certainly not a lot. Figure 9 shows the UK tax burden which, by the end of the Office for Budget Responsibility’s (OBR) forecast period, is expected to be at its highest in recorded history, and higher than any country save France and Italy. So perhaps there’s something down the back of the sofa, but it’s limited, and particularly so given the explicit limitations in Labour’s 2024 manifesto.

Figure 9: UK tax revenues as % of GDPvs. selected countries

Source: OBR, Man Group calculations. Date range: realised 1949 – 2025; forecast 2025 - 2030

Problems loading this infographic? - Please click here

What about the costs side? Figure 10 (the last one, promise) shows the seven biggest budgetary components, for 2021, 2025 and the growth in between. Obviously I’m not going to re-write the budget in an investment note. Allow me instead three high-level points on the three chief offenders of the UK’s budget deterioration.

First, the rise in debt interest which has added £82 billion to costs over the past four years. Clearly this is in part a global manifestation of the ‘higher for longer’ rates world, but as we have seen, it’s not all that. There is a reflexivity to stable government, control of inflation and budgetary frugality. You may not be interested in the bond market, but the bond market is interested in you.

Second, the rise in welfare spending added £48 billion over the same timeframe. While specific breakdowns are notoriously difficult to isolate, this increase could stem from expanding categories of long-term disability and health-related support. Navigating these trends requires careful nuance, as the goal should never be to undermine support for those with genuine, debilitating conditions. However, given the significant scale of these rising costs, I believe it is entirely legitimate to examine the underlying structural drivers and assessments behind this growth.

Third, Pensions & Old Age costs, which have increased by £37 billion. It is likely that a sizeable portion of this has come from the 2010 imposition of the Triple Lock (where the programme must increase by the highest of inflation, wage growth or 2.5%). According to OBR estimates, this has added somewhere between £15 billion (if payments were upgraded by wage growth alone) and £23 billion (if they followed inflation alone). Today’s retirement age in the UK is 66, rising to 67 by 2028. In 1889 Otto von Bismarck launched the world’s first universal pension scheme, with a retirement age of 70. This was at a time when average life expectancy was around 40. Or perhaps closer to 60 if you adjust for infant mortality. But either way your run tending the garden was limited. Clearly, societies have moved on since then. And this is difficult for politicians: ‘work longer’ is hardly an alluring political slogan. But in economies decidedly less manual than in the days of the Iron Chancellor, designing the right system of incentives to reward labour extension seems at least worthy of study. Grit your teeth. In the words of 006, “for England, James”.

Figure 10: UK selected budget lines 2020-21 and 2024-25

Source: OBR, Man Group calculations

Problems loading this infographic? - Please click here

None of this is easy. All requires significant political will. But one takeaway is that there is a lot within policymakers control, if they do discover that backbone. And then perhaps we might get to the point where we can say, to paraphrase a hybrid of Sir Elton and Jonathan Ross: goodbye, England’s woes.

1. Here I have used the BIS data, for ease of comparability. This likely flatters the UK’s government number a little, given they use market not nominal value of the debt, benefitting countries, like the UK, that fixed borrowing for longer in the pre-Covid era

2.For more detail on this see: https://www.man.com/insights/road-ahead-term-premium