Beware the bond markets. The UK cost of debt is too high.

My Speech on what needs to be done to promote growth and prosperity.

My Lords, I agree with the noble Lord, Lord Whitty, that the national insurance increase and the farms tax were very bad ideas which did considerable damage. It is a pity that more noble Lords behind the Government did not make that clearer in time to avoid the disaster.

I hope that the new Prime Minister and new Chancellor will have learned from the bitter experience of the two Reeves Budgets, which allowed a large amount of adverse speculation, threatening everyone who is successful or enterprising or who has some savings with higher taxes. The  Government were surprised when confidence was knocked. They then  put taxes on in the Budget, which did considerable damage, and we ended up with higher unemployment, fewer job vacancies, cancelled , deferred investment projects and a lack of confidence in the business community. We need the opposite of all those things. I wish the new Prime Minister well if he can translate his TikTok optimism into a genuine set of policies which will promote enterprise, business, jobs and success, which are what is needed in this country.

As someone who has had conversations with and offered advice to a series of Prime Ministers and Chancellors on the Conservative side from Margaret Thatcher onwards, I have had the chance to observe at quite close quarters what has succeeded and quite often what does not succeed, and I have tried to learn from those experiences. I will share this piece of advice with the new Treasury team: take the bond market seriously. You may not like it and you may think it is wrong, but you are going to find it very difficult to argue with it.

Those very high costs of government borrowing now are a message. They are saying that the tax option is no longer there. Put taxes up more and you may even collect less revenue. They are saying that the spending is too high. You need to look at the benefits bill, as my noble friend the leader of the Conservatives in this House and our right honourable friend the leader of the Opposition have set out in considerable detail. They have described how sensible, modest cuts and proposals would help. By all means accelerate the work on how you can get more young people into work by positive means and get them off benefits, because that is crucial.

However, look at those interest rates. Labour made a lot of fuss when for one day under Liz Truss there was a spike to quite high levels in government borrowing costs, and some of them still carry on about it. I do not think they have understood that for the whole of 2025 and now for the whole of 2026 to date, government borrowing costs have been considerably higher than that one-day spike under Liz Truss. If the Truss spike was wrong, they are gratuitously wrong on an extended basis. There are two differences in the situation.

The Truss Government did not borrow a penny at that very high rate on the spike day; this Government are borrowing, day after day and week after week, at these very elevated rates, which are at least 20% higher than the worst rate under Liz Truss.

The Government have not persuaded the Bank of England to stop selling bonds into a very depressed market. The  thing that got the rates back down again after the Truss Budget—which was spending too much—was of course the Bank of England stopping, for a period, selling the bonds at very depressed prices. The Government need to get a grip on that because they are doing themselves and us grave damage.

I want this country to succeed, I want a strong, fast-growing economy, and I want those young people back into work. That takes lower interest rates, not higher interest rates, and it takes proper fiscal discipline. Spouting about fiscal rules does not work. You have to do the hard work and get the Budget into more balance.