Why the UK pays more interest on its debt than rival countries… and it's not just the 'moron premium': ALEX BRUMMER

An issue for John Healey to deal with when he returns from the divisive summit of G20 economic powers in North Carolina is Britain’s high-cost bond yields.If the Chancellor could bring the interest-rate bill of £135billion or so on the UK’s £3 trillion of national debt down, he might be able to fund the defence budget without piling on growth-destroying wealth and bank taxes.The cost of government borrowing is ferocious across the globe, from Japan to France. Even the mighty United States, which relies on the exorbitant privilege of the dollar as a reserve currency, struggles with borrowing costs of 4.79 per cent over ten years and a hefty 5.26 per cent over 30 years.No other G7 rich nation pays as much as Britain to borrow. The ten-year gilt yield stands at more than 5.2 per cent and the 30-year-bond climbed as high as 5.9 per cent yesterday.Bond costs gobble up chunks of tax revenues, push up mortgage costs and set the pace for commercial borrowing. Debt burden: For decades, Britain preferred to issue long-term debt and so our borrowing has an average age of 14 years, twice that of bigger borrowers Japan and FranceThis is all bonkers. Japan, after all, has a debt-to-national-output ratio of 204pc. France runs a budget deficit of 5.1 per cent of gross domestic product (GDP) against Britain’s 3.6 per cent. Italy’s debt-to-GDP ratio is a whopping 137 per cent, and untrammelled US debt stands at $40 trillion.As former chancellor Rachel Reeves blamed Liz Truss for the ‘moron premium’, four years on it is dead and buried, smothered by tax-raising budgets and revised fiscal rules.The reality behind UK borrowing costs is complex. Responsibility is down to flawed decisions at the Treasury, the Debt Management Office and the Bank of England.Almost a quarter of UK debt is index-linked to the discredited Retail Prices Index. In an age of elevated inflation, fuelled by geopolitical strife, Britain’s debt payout to investors is a hostage to fortune. France, an economy similar in size to Britain, has just 9.1 per cent of indexed debt. The UK is an outlier. For decades, the country preferred to issue long-term debt and so its debt has an average age of 14 years, around twice that of larger borrowers Japan and France. The decline of defined benefit pensions and the search by providers for better returns made longer-dated bonds less fashionable.The Bank of England’s obstinacy on how best to treat its treasure chest of £558billion of gilts, bought in the financial crisis and Covid-19, doesn’t help.Other central banks choose to hold them until maturity. Governor Andrew Bailey and his posse are selling them back to the market adding to overwrought supply.Rigidities in Britain’s bond markets, created out of a mistaken probity, need urgent unpicking.Tarnished goodsIn 2024, I was invited to meet with Donald Tang, who was love bombing London.The executive chairman of cheap, fast fashion outfit Shein, dressed in a captivating boiler suit, was consuming noodles in London’s stylish Peninsula Hotel.He argued a £50billion float or bigger would ignite the City’s moribund market for initial public offerings.Potential problems, notably a supply chain with alleged human rights abuses, were brushed aside in a swirl of optimism. Two years later, having failed to pass muster in New York and London, Shein has made a lukewarm debut in Hong Kong, where investors are less squeamish.The economics of Shein were transformed for the worse by US and European Union clampdowns on ‘de minimis’ imports, which allow cheap goods to enter free of duties.Only the UK, among larger economies, is still reviewing the exemption, vaguely hoping to curry favour with Beijing.Shein’s $26.3billion launch in Hong Kong failed to shoot out the lights. Even so it is still valued more highly than Next at £18.6billion, the British fashion retailer with the most admired online operation.Bodycote blowThe private equity assault on the FTSE continues with the sale of aerospace supplier Bodycote to New York’s Veritas Capital for £1.85billion.The Macclesfield-based group was bought out of the remnants of the Slater-Walker empire in 1973. It was transformed by the likeable entrepreneur Joe Dwek into an innovative engineering company with deep roots in the North West.Not a great victory for Manchesterism.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you