Andy Burnham had a plan to win over financial markets. It’s falling to pieces.
Andy Burnham needs to confirm his fiscal credibility, and fast (Image: Getty)
As he pushed to become PM, Burnham realised he had a credibility problem. Financial markets didn’t trust him. He made a fool of himself by saying Britain had to “get beyond this thing of being in hock to the bond markets”. The only way to do that is stop borrowing billions from them every month. Yet Burnham wanted to do the complete opposite and borrow even more. So he lined up three top financial experts to give him cover. Burnham spent weeks winning them over. It was an astonishing assembly. Three wise men who knew their stuff.
Their names? Jim O’Neill, former Goldman Sachs chief economist. Andy Haldane, former Bank of England chief economist. And Richard Hughes, former chairman of the Office for Budget Responsibility. I was surprised and impressed. What’s happened since doesn’t surprise me at all. And it’s humiliating for Burnham.
Lord O’Neill has just confirmed that he won’t be taking a formal role in Burnham’s government. Officially, it’s because he’d have to hand over the running of his extensive financial affairs to avoid any conflict of interest. But there have been policy differences too. Lord O’Neill has publicly opposed proposals within Labour to introduce a wealth tax or hike capital gains tax, warning this would drive out venture capitalists and entrepreneurs and crush growth.
One down. And now I don’t think Haldane will be taking a job now either. On Wednesday, he slammed Labour’s tax hikes in the Financial Times, saying they’d damaged growth, and called for a three-year moratorium on further tax rises and spending pledges.
If Chancellor John Healey can’t spend the next three years taxing and spending, what can he do? It’s the only plan Labour ever has. So Haldane is out of the running.
As for the third man, Richard Hughes, he’s keeping his cards close to his chest. He was forced to resign after being made the scapegoat for Rachel Reeves’ Budget leaks last November, so maybe he’s had enough of this government. Although he might enjoy returning to favour now she’s out.
Either way, it’s a terrible look for the PM. And it’s happening at an absolutely terrible time.
Global markets are on edge. For decades, western governments have piled up debt and now the mountain is toweringly high. The US owes almost $40trillion. Britain owes close to £3trillion. The Office for Budget Responsibility itself warns that public debt is heading onto an unsustainable long-term path.
So Burnham needs every scrap of financial credibility he can get. Yet he doesn’t seem alive to the danger. As market nerves grew, he was in Wolverhampton talking about buses. We’ll be calling a taxi for our new PM if that debt bubble blows up on his watch.
In his first days as PM, Burnham ran off £1.5billion in spending pledges. He has to find £4.7billion for defence, his social care reforms could cost £18billion, while a council housebuilding spree could cost tens of billions.
He’s doing this at precisely the wrong moment.
Yesterday, we learned that Britain borrowed another £1.8billion in July. That’s despite July normally being a good month, when self-employed tax receipts stream in. Welfare spending rose 7.2% over the last year. At best, the economy will grow 1% this year. You can see the problem.
The latest crisis has been brought to a head by the Iran war, which of course we can’t blame Burnham for. But it’s helped drive 10-year gilt yields above 5%, well into the danger zone.
This is a terrible time to be borrowing more money. Burnham needed his three wise men to convince the markets he was serious. One has walked away. One has publicly shot down his plans. The third is lying low. And the bond market is watching.