EXCLUSIVE: The £7 trillion will have to be raised, via visible or shadow taxation, from UK businesses and individuals, says Bob Lyddon.
Britain’s Chancellor of the Exchequer Rachel Reeves (Image: AFP via Getty Images)
Rachel Reeves faces renewed scrutiny over her state-directed investment plans as UK public borrowing hit a five-year high for September at £20.2 billion, deepening concerns about hidden fiscal liabilities. The surge, driven by rising debt-interest payments and welfare costs, comes ahead of Ms Reeves’ November Budget, where she must address a reported £20–30billion shortfall in public finances.
Bob Lyddon, founder of Lyddon Consulting Services, has linked this to a potential £6.7 trillion “shadow debt explosion” from Labour’s growth strategy, in a report published last week through the Institute for Research in European Fiscal Studies (IREF Europe). Mr Lyddon’s analysis targets Ms Reeves’ commitment to raise public investment toward 2.5 percent of GDP each year through the National Wealth Fund and Great British Energy.
Shadow Chancellor Mel Stride (Image: Getty)
That level would imply public investment of roughly £70–75 billion annually – well above current levels. He estimates the expansion could create £1.64trillion in shadow debt, with repayment costs approaching £7 trillion over time.
He told Express.co.uk: “It blows Ms Reeves’ numbers and the whole sorry saga around the OBR, fiscal headroom and so on to smithereens. The essence is that Labour’s programme of ‘state-directed investment’ will pile on an extra £1.64 trillion of shadow debt for the UK, costing nearly £7 trillion to pay back.”
Mr Lyddon argued that such liabilities may remain obscured by using off-balance-sheet investment vehicles. These schemes would not appear in the main public-debt metrics, yet UK businesses and households would ultimately bear the cost through taxation.
He said: “The £7 trillion will have to be raised — via visible or shadow taxation — from the same source: UK businesses and individuals. All the new debt will be hidden: either netted off within ‘public-sector net liabilities’, or structured so it leaves no footprint at all in the public accounts, even though taxpayers are collectively responsible for paying all of it back.”
Mr Lyddon further criticised Net Zero costings, claiming the Climate Change Committee (CCC) failed to include borrowing costs in its assessment of the 2050 target.
National debt has increased steadily over the last five years (Image: Express)
He said: “Within this overall amount, the CCC specifically managed to overlook the cost of capital for the Net Zero transition. It makes Net Zero look possibly affordable if we get over the loss of Fuel Duty, but in reality it is not remotely affordable.”
He also accused the Office for Budget Responsibility (OBR) and Bank of England of endorsing the oversight, saying: “The OBR and Bank of England have accepted this crass omission without demur: by doing so they sing from the same demented hymn sheet.”
Chancellor Ms Reeves has dismissed such forecasts as overly pessimistic. Writing in The Guardian this week, she pledged Labour would “defy the doomsayers and beat the forecasts,” highlighting recent Gulf partnerships aimed at accelerating growth.
Public borrowing has already reached £99.8 billion in the first six months of the financial year, according to the Office for National Statistics, while public-sector net debt stands at about 95%t of GDP—up from roughly 93% at the time of Labour’s July 2024 election win.
With interest payments running at around £110 billion a year — nearly 10% of total receipts, pressure is mounting ahead of the Budget. Shadow Chancellor Mel Stride has called for greater scrutiny of off-balance-sheet liabilities and warned that transparency on contingent debts must improve.
The debate intensifies as Ms Reeves signals “necessary choices” in interviews, hinting at possible tax rises and spending cuts. Growth forecasts for 2026 have eased to around 1.1%, amid persistent inflation and global headwinds.
Her recent Gulf trip sought investment to offset domestic shortfalls, but critics argue it underscores Britain’s reliance on external capital to plug funding gaps.
With productivity stagnant and fiscal headroom tight, Lyddon’s warning frames the November Budget as a test of transparency. Accurate costing of Labour’s investment plans will determine whether they bolster long-term stability or deepen the UK’s hidden debt burden.
