Burnham May Yet Rewrite UK Fiscal Playbook If He Becomes Premier

2ufddcb9m5l73py9r2v3i[7i_media_dl_2.png Institute for Government

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(Bloomberg) — After Andy Burnham took a giant leap toward becoming the UK’s next prime minister, focus is turning to how the team he’s assembling could shape the country’s economic policies.

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Fiscal issues have been especially sensitive for Burnham. Last year he appeared to slight the bond markets, saying the UK had to move beyond being “in hock” to them. They’ve returned the favor by being wary of him, and any policies he might advocate that imply greater borrowing. 

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Burnham has said it was all a misunderstanding. A person familiar with his thinking said the incoming MP for Makerfield is aware of the fragility of the bond markets. He has recently moved to reassure investors, committing to Chancellor of the Exchequer Rachel Reeves’ self-imposed constraints on spending and borrowing. 

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Those require the government to cover day-to-day spending with tax receipts and for debt to be falling as a share of the economy. The Member of Parliament-elect also pledged not to make any exception for defense spending, just weeks after floating the idea in a Bloomberg interview.

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But while Burnham has committed to Reeves’ current framework, several of the economists, MPs and policy wonks he’s assembled around him have argued that the rules are too short-termist and prone to choking off investment that might improve growth.

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Burnham is taking advice from former Bank of England Chief Economist Andy Haldane, ex-Goldman Sachs Chief Economist Jim O’Neill, former Institute for Public Policy Research Executive Director Carys Roberts, and Richard Hughes, who chaired the Office for Budget Responsibility until December, Bloomberg reported Thursday.

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They are “all extremely credible,” according to Rupert Harrison, a senior adviser at PIMCO who served as an aide to the Conservative Party’s George Osborne when he was chancellor. Still, Haldane and O’Neill “have been calling for looser fiscal rules for some time,” he posted on X. “Don’t think this fiscal rules debate is settled.”

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O’Neill has previously called the UK’s fiscal constraints “petty and arbitrary.” Haldane has said the case for changing them is “overwhelming,” arguing that they should allow for more government investment in order to drive growth. Hughes, meanwhile, told lawmakers in January that Reeves’ fiscal rules do little to bring borrowing under control and mean “that righting the fiscal ship after a shock happens much more slowly.”

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Louise Haigh, the former transport secretary who has led Burnham’s campaign, has also been a vocal critic of Britain’s fiscal framework. Writing this week, she said it pushes governments to “make short term decisions to hit some arbitrary target in the future,” creating a “misleading sense of precision.”

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Haigh argued that the Treasury’s debt target should be stretched from current three- and five-year rolling windows to a longer horizon of about 10 years. That would potentially create more room for investment without formally abandoning the rubric.