Britain’s upcoming change of Prime Minister has brought the nation’s governance to a screeching halt. 

Voluminous reports from the Office for Budget Responsibility (OBR) and the Bank of England illustrate why the last thing the country needs, as it awaits the anointment of Andy Burnham, is indecision and uncertainty.

The OBR doubles down on what Burnham and the country needs to know. Britain’s public finances are becoming ‘unsustainable’ despite claims by current Chancellor Rachel Reeves that Labour’s fiscal rules restored order.

The common theme to be drawn from the OBR and the Bank is that Britain and global finance sit on a debt precipice and it won’t take much to tip the nation over the edge.

The AI boom has seen valuations of tech firms and Wall Street soar. It is built on fragile foundations of debt. In the hands of bad actors, AI also increases risks of cyber-attack and market manipulation.

The UK’s ratio of debt to output already stands at close to 100 per cent. Brave decisions on how welfare, health and pensions are to be paid for are required – otherwise debt-to-GDP will head into the stratosphere by the late 2040s.

UK debt has shot up as a percentage of national output faster than any advanced economy over the last two decades.

It is not just the Government that is hooked on borrowing. This week, a feeble board at no-frills airline Easyjet capitulated to a £5.5billion bid from private equity marauders Castlelake, fuelled by debt.

If the Government and regulators fail to draw a line in the sand, Easyjet will join another 520 corporations in Britain financed by private credit and private equity. 

Together, these enterprises account for £230billion in revenue and £40billion of earnings, the Bank of England says.

The debt-fuelled structures are opaque and the Bank fears they could be a threat to stability.

The need for action to take Britain out of the fiscal danger zone – the cost of borrowing for the Government is the highest in the G7 – is urgent. The nation’s interest rate bill is running at £110billion in 2026-27.

This at a moment when Keir Starmer sits embarrassed at the Nato summit in Ankara because of Britain’s failure to properly fund defence.

History suggests that it requires a crisis, such as 1976 when the UK was forced to borrow from the International Monetary Fund (IMF), to turn the tide. 

In recent times both Greece and Italy have been required by the IMF and EU authorities to confront their fiscal crises and emerged as healthier and growing economies.

If Burnham or other political leaders were willing to drink the Kool-Aid, there is nothing to suggest that the nation couldn’t conquer its fiscal difficulties.

We can do little about an ageing population but can reduce the cost to taxpayers. Abolition of the ‘triple lock’ on state pensions – and instead increasing them in line with consumer prices – would be a start. 

The OBR also suggests that if inflation adjustment on welfare payments were switched to CPI from average earnings, then spending could be halved.

It is also clear from the OBR’s analysis that Labour’s current tax policy is doomed. It quotes a recent IMF analysis suggesting that Britain has reached peak taxation of labour income, with higher taxes producing diminishing returns.

Burnham appears to favour taxes on capital and housing by equalising levies on capital with those on income and mansion tax. As we know from Reeves’ changes, all that does is drive wealth, share listings and entrepreneurship overseas.

There are multiple crises on the horizon. Bond yields hit an 18-year peak in May and could pop again. 

The Bank has cautioned that there could be a sharp correction in equity markets, with a potential 45 per cent fall on Wall Street over six months should hyped AI valuations be found out.

Regulators are drilling down into where the risks in private credit and equity lie. Fissures have already surfaced at UK upmarket mortgage lender Market Financial Solutions, US car parts group First Brands and sub-prime lender Tricolor.

Debt, public and private, is the enemy of stability.