Britain has paid the highest yield on ten-year debt in 27 years as bond market turbulence batters Andy Burnham’s Britain.

The announcement illustrated the financial headache facing the Prime Minister as he delivers his first speech as leader to the Labour Party conference.

Britain’s Debt Management Office (DMO) said it sold £4.25billion of UK ten-year bonds – known as gilts – at an average yield of 5.38 per cent, the highest level since September 1999.

It means that the Treasury is paying a higher rate of interest to the investors who finance the UK government – which will make it harder for Mr Burnham’s chancellor to make the sums add when he delivers next month’s Budget.

More money spent on the debt interest means there is less available to fund higher defence spending, social care or council house building.

That could mean yet another tax raid by Labour to add to the £75billion in hikes under Mr Healey’s predecessor Rachel Reeves – though many in the City believe it will be better to make savings by curbing the ballooning benefits bill.

The DMO regularly sells gilts – which deliver fixed returns to investors – to raise money for the government, which are then traded on the secondary market.

When their prices fall in these markets, their yields for investors rise.

Bond yields have been rising globally since Donald Trump’s Iran war started earlier this year as oil prices surge, driving up inflation.

This week saw renewed volatility as hopes of a lasting solution to the conflict diminished, pushing Brent crude to nearly $109 a barrel on Monday.

In Britain, investors are also worried about how Mr Burnham will pay for his plans and whether he is committed to bringing down borrowing.

On Monday, Chancellor John Healey insisted in a speech at the Labour conference that the government would stick to fiscal rules and that he planned to take on staggering debt levels and the ballooning benefits bill.

But it was not enough to prevent ten-year gilt yields rising to the highest level since 2007.

When yields rise on bond markets, it means the government has to pay a higher rate at auction as it has just done.