Key facts
- Andy Burnham is reportedly considering plans for an extra £9 billion in annual borrowing.
- Former chancellor Phillip Hammond stated bond markets will "see straight through this ruse" and increase UK debt costs.
- The Institute for Fiscal Studies questioned if the benefits of extra borrowing outweigh the costs.
- Economist Jonathan Portes called the potential £9 billion annual borrowing figure "not transformative."
Andy Burnham has been warned by financial experts and a former chancellor that proposed plans for an additional £9 billion in annual borrowing will be seen through by bond markets. Critics, including former Conservative chancellor Phillip Hammond, liken the proposal to an "accounting trick" that would increase the cost of UK debt. James Hodgkinson of the Adam Smith Institute argued that the gilt market has long stopped believing promises that borrowing pays for itself.
The Institute for Fiscal Studies (IFS) also expressed concerns, questioning whether the benefits of any extra borrowing would outweigh the costs, noting that borrowing is currently expensive and contributes significantly to government spending. The IFS highlighted that a high and rising national debt makes the UK more vulnerable to future shocks.
Economist Jonathan Portes, while acknowledging improvements in fiscal rules, stated that the proposed £9 billion annual borrowing, equivalent to 0.3% of GDP, would "not be transformative" and would not eliminate the need for difficult choices regarding tax reform or spending cuts. This comes as Chancellor John Healey has reportedly told the Cabinet to prepare for cuts to finance new spending promises.
Burnham has recently announced measures such as a 20% business rate cut for pubs, clubs, and live music venues, a VAT cut on electricity bills, and capped bus fares at £2, the costs of which are not yet fully clear.