Prime Minister Andy Burnham has hit a roadblock in his plans to meet his pledges on defence and the cost of living. According to a major think tank, Burnham will have to raise taxes or cut spending to fund his promises, as the public finances continue to be squeezed by persistent inflation.
Burnham's Borrowing Limit Hits a Wall
The National Institute of Economic and Social Research (Niesr) has warned that there's no scope for increasing borrowing, leaving the Prime Minister with difficult choices to make. Niesr's deputy director for macroeconomics, Stephen Millard, said, "There's clearly no scope for increasing borrowing, so it is about choices." Millard's comments come as Burnham has announced a series of new measures since assuming office, including cuts to electricity bills and bringing the bus fare cap in most parts of England back down to £2.
The Cost of Living Measures
The Labour Party's manifesto pledge was to not increase taxes for working people, including income tax, VAT, and national insurance contributions. However, Niesr is advocating for cost-of-living measures to be funded through higher taxes or spending cuts. Millard suggested that people have talked a lot about the welfare bill, which is an obvious place to look. He also pointed to potentially reforming council tax to move towards a land value tax system, or scrapping some VAT exemptions.
The Road Ahead
Niesr's latest economic outlook expects inflation to keep rising until February 2027, peaking at 3.8% before falling back to the Bank of England's 2% target. The think tank also does not believe the central bank will cut interest rates until 2028. Director David Aikman said, "Treading water is not enough" to prevent the national debt from rising. The Treasury has stated that the government will stick to its fiscal rules while investing in "the public services people rely on."
A Tightrope Walk
The situation is a tightrope walk for Burnham, as he tries to balance his promises with the reality of the public finances. With no scope for increasing borrowing, the Prime Minister will have to make some difficult decisions. As Millard said, "Once you've done all of that, then I'm afraid I would break the manifesto promise and would be looking at the income tax rate." The coming months will be crucial in determining how Burnham navigates this challenge.
Source: Joy Online
