The OBR’s July 2026 Fiscal risks and sustainability report says gilt yields could hit 9.6 per cent if debt keeps rising. That number is a symptom of a model built backwards.

The model assumes government and private investment fight over the same fixed pool of household savings. More public debt leaves less for everyone else, so the price goes up. That’s loanable funds, a theory designed for a barter economy, not the one we have.

Feed a model a false scarcity and it hands you back a price for that scarcity. Leave out the plumbing and 9.6 per cent is what the equations produce.

The sterling system runs on reserves, bank deposits, and a Debt Management Office managing the maturity mix of its liabilities. That’s the working machine. The model describes a different economy, which is where it breaks down.

Paying more than Bank Rate on gilts is a policy choice, not an economic necessity. It routes free money to whoever already holds the most sterling assets, which in practice means the rich. Time to revise that policy.

The model assumes financial crowding out, where government borrowing soaks up the pool of savings and denies the private sector access to funding.

Genuine crowding out is physical, and it runs in the opposite direction. The Government operates within a fixed budget and procurement rules built to block overspend, so it delays rather than chases the price, leaving posts unfilled and projects unfinished. The private sector needs today’s profit, so it pays whatever it takes to attract the same labour and materials. The private sector denies the public sector, not the other way round.

Apply that discipline harder and the squeeze gets stronger. Hold departments to flat budgets. Refuse any increase on last year without a matching case for more activity. The Government becomes the structural loser in that competition for labour, by design, and that keeps a lid on prices.

The binding constraint is empty desks. That’s the number that matters, not the 9.6 per cent the model manufactured. When vacancies climb to a critical level, use taxation to free up the workers the Government needs.

The Bank of England published how the machine actually works in 2014. The OBR have had twelve years to read it. Judging by the model they are still running, they haven’t.

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