Andy Burnham has told reporters to expect a ‘challenging’ Budget, as Burnham Budget tax hikes appear increasingly likely following a sharp rise in government borrowing costs that has complicated the new prime minister’s economic plans. The warning came on the same day that the Office for National Statistics reported inflation had surged to a five-month high of 3.1 per cent last month.
Speaking on Wednesday, Burnham said: ‘The Budget is going to be challenging because the picture around the world is challenging and the situation in the Middle East. We won’t take risks with people’s living standards or the economy as a whole. It will mean taking whatever action we can to help people.’
The comments came as the yield on the UK’s 10-year gilt touched 5.41 per cent on Tuesday, its highest level since 2007. The strain on longer-dated debt was sharper still. According to the BBC, the yield on 30-year gilts rose to 5.89 per cent on Tuesday, the highest level since 1998, with long-term government borrowing costs reaching a 28-year high. The report put the intraday peak on 30-year gilts at 5.93 per cent.
The government has attributed the surge in gilt yields to a global sell-off driven by investor fears that rising oil and gas prices will force central banks to raise interest rates. Whatever the cause, the consequences for Burnham’s first Budget are acute. He and Chancellor John Healey are now expected to find as much as £9 billion to restore the Treasury’s fiscal headroom, even before funding any of the administration’s more ambitious policy commitments.
Burnham Budget tax hikes and the pressure on fiscal headroom
The Budget is expected to take place on 28 October. According to the BBC, Burnham is expected to use it to prioritise further measures aimed at easing the cost of living, a pledge that has sat at the centre of his domestic agenda since taking office. How he squares that commitment with the scale of the fiscal gap now confronting HM Treasury is the central question hanging over the next few weeks.
Two former advisers to Burnham have gone public with their concerns, adding pressure from an unexpected quarter. Andy Haldane, described in the report as a former chief economist at the Bank of England who declined a formal role in the government, said this week that Burnham is presiding over a ‘traditional tax and spend socialist government with better TikTok videos’. Haldane identified the administration’s failure to cut public spending as its ‘Achilles heel’.
Burnham rejected the framing. ‘That does not tell the story, we are not that,’ he said. ‘Already I’ve taken difficult decisions in this job to reprioritising gov spending, putting digital ID on hold for instance. It’s not that we won’t take difficult decisions, we will take difficult decisions to make sure the economy remains on track.’
Former advisers urge spending restraint
Lord Jim O’Neill, another former adviser who also refused an official post, has made a similar case from a different angle. The former Goldman Sachs economist argued that Burnham is failing to pull the levers available to him that could calm bond markets. Lord O’Neill called on the prime minister to rein in the ‘excesses’ of government spending by abolishing the triple lock on the state pension and overseeing substantial cuts to welfare spending.
The position of both former advisers points to a tension that has grown more difficult to ignore as gilt yields have risen. Burnham came to office promising to give households ‘breathing space’ on the cost of living and to pursue a devolution programme alongside stronger public control over essential services. Those ambitions assumed a degree of fiscal room that the bond markets are now making harder to defend.
Whether the Burnham Budget tax hikes that now appear probable will be presented as a direct response to gilt market pressure or framed around longer-term investment priorities, the prime minister has made clear that difficult decisions are coming. The ONS inflation reading of 3.1 per cent, a five-month high, gives the Treasury little latitude to delay them.
