Wannabe Prime Minister Andy Burnham has received a sobering reminder of the economic challenges he would face if he ever secures the keys to Number 10, after figures revealed a sharp rise in government borrowing last month.
While Burnham may have been focused on other priorities at 7am on Friday, the Office for National Statistics' public sector finances data for May paints a stark picture. The state of the nation's finances will ultimately determine what he can and cannot achieve if he succeeds Sir Keir Starmer as Prime Minister.
Borrowing Figures Raise Alarm
Government borrowing—the difference between tax revenue and spending—reached £23.3 billion in May. This was £5.4 billion higher than the same month last year and, notably, £5.6 billion above the Office for Budget Responsibility's forecast.
Nearly half of that total, £11.7 billion, was attributed to central government debt interest payments. Interest costs surged by £4.1 billion (54.4%) compared to May last year, marking the highest level for any May on record. This equates to £377 million paid daily just to keep the country's finances afloat.
National Debt Nears £3 Trillion
Years of heavy borrowing have driven the national debt to £2.94 trillion, with the ominous £3 trillion milestone within sight. While some of this stems from past policy mistakes, much is due to government intervention during crises beyond domestic control, such as the 2008 financial crash and the Covid-19 pandemic.
This financial reality constrains any government, regardless of pre-election promises. However, it does not render their hands completely tied, but it demands smart policymaking.
Market Reaction to Burnham's Victory
Number 10 and the Treasury have been monitoring bond markets closely following Burnham's by-election win for signs of investor nervousness. The government relies on gilts—UK government bonds—to meet its borrowing needs.
Dan Coatsworth, head of markets at broker AJ Bell, commented: "Andy Burnham's by-election victory hasn't fazed bond markets, but this might simply be the calm before the storm. Keir Starmer has so far indicated he won't step down, which means there could be a leadership challenge and that could cause unease on the markets. Investors hate uncertainty and politics has a habit of making their heads spin."
Political and Economic Implications
Much will unfold politically in the coming weeks and months, with significant economic repercussions. While the drama may lie elsewhere, the state of the economy, potential spending cuts, and tax rises will likely determine who resides in Number 10 and for how long.
