OPINION: Harvey Jones writes that Andy Burnham must be ranting and raging at his fate right now.
Andy Burnham can’t do what’s necessary, it would finish him (Image: Getty)
He’s spent his adult life hustling to become PM, only to get there at the worst possible moment. Burnham dreams of being the next Tony Blair, in power for a decade. Instead, he may become the Labour Party version of calamity Liz Truss. He risks a full-blown meltdown this autumn by presiding over a Budget that bond markets won’t accept. But Chancellor John Healey will be under intense pressure to present it anyway – from his own party.
On Monday, Healey slapped down attempts by journalists to get him to speculate on which taxes he might increase on October 28. Pre-Budget speculation ran riot under predecessor Rachel Reeves, causing panic and smashing confidence. Understandably, Healey doesn’t want that happening on his watch. But there’s another reason he’s keeping his cards close to his chest. The bond market is watching him like a hawk.
Bond yields are rising around the world as investors decide they’ve had enough of governments racking up ever bigger debts. The US, Japan, France and Italy have borrowed even more than us. But our borrowing costs are higher than theirs, putting us on the front line of any crisis. Long-term gilt yields recently hit their highest level in 28 years. Healey can’t afford them to go any higher because it will cost us billions in extra interest. His fiscal headroom has already shrunk to around £10billion. It could shrink further.
If the market thinks Burnham will unleash a third Labour Party tax and spending spree, the Budget will blow up in his face. Unfortunately, Burnham raised expectations that he’ll do just that, as part of his pitch for power and popularity.
As we learned from Labour cabinet minister Pat McFadden, every meeting with Labour MPs comes back to the same question: “Who can we tax in order to pay benefits to others?” These are the same MPs who cheered Burnham’s Westminster return to the rafters. Now they expect him to deliver.
What Burnham should be doing is the exact opposite of what his party appointed him to do. Britain owes almost £3trillion. Our tax burden is at a post-war high. Borrowing costs are soaring. The last thing Burnham needs to do is borrow more, tax more and spend more. He should come right out and say it now.
His own financial experts are demanding he does just that, including his own adviser Andy Haldane, who’s called for a three-year moratorium on tax hikes. But if Burnham did, the left would tear him apart. So he won’t.
Our PM wants to tell everybody what they want to hear. And what Labour MPs want is more tax, more spending, more borrowing. The bond market needs to hear the exact opposite. Otherwise it will charge us even more interest.
The bond market is a rock. The Labour left is a hard place. Burnham is about to be crushed between them. It must seem so unfair.
We’ve been living beyond our means for years, but a string of chancellors pretended they were on top of things, when they weren’t. The illusion was sustainable when interest rates and gilt yields were near zero. As they rocket towards 6%, that’s no longer possible.
It looks like years of denial will finally come to a head on Andy Burnham’s watch. He can rage all his likes, but it won’t help. The crunch is coming. His Budget could be a horror show. Either Labour will tear him apart, or the bond market will. Burnham must take his pick.