Chancellor John Healey must balance the books in his upcoming Budget or risk plunging Britain into a financial crisis, according to Andy Haldane, former chief economist at the Bank of England. Haldane, who previously advised Prime Minister Andy Burnham, said the chancellor cannot achieve this by hiking taxes, which he described as "disastrous" and a risk of "cratering growth". Instead, Haldane said Healey must "take the knife" to ballooning public spending.
Advisers and Bank of England sound alarm
Haldane no longer advises Burnham formally, having recently accused the PM of running a "traditional tax-and-spend socialist government". He is not the only former adviser to raise concerns. Lord Jim O'Neill, former Goldman Sachs economist, has said another Budget tax raid would be "stupid", damaging the growth Britain needs.
Bank of England Governor Andrew Bailey also weighed in, speaking to fellow central bankers. He warned that any government tax and spending plans must "be seen by markets as credible". Bailey invoked Liz Truss's 2022 mini-Budget, which sent borrowing costs soaring, and warned: "If markets begin to doubt the fiscal trajectory, bond yields can rise further."
Gilt yields hit 28-year high
Tory shadow chancellor Andrew Griffith said the message was clear: "In central banker speak this is a clear warning to the government to get a grip on their debt-fuelled spending binge." The warning came as 30-year UK gilt yields topped 6%, hitting a new 28-year high.
Rachel Reeves, Healey's predecessor, was described as a disastrous chancellor. Her £66 billion tax raids crushed business confidence, while her spending plans left Britain in hock to the tune of £130 billion a year. However, she set out her fiscal rules and stuck to them, a point in her favour.
Pressure from Labour and the PM
Healey says he will do the same, but many on the left are demanding he abandon those rules, which stop him from spending more taxpayer cash on Labour's projects. When Healey told Labour's conference that money was tight, party members fell silent. Burnham has already cut VAT on electricity bills, capped bus fares and signalled help for rough sleepers, and wants to fund a big council house-building programme and sort out social care.
A global financial crisis could turn nasty, as seen in indebted France. If the Iran war drags on and the oil price climbs, then inflation, gilt yields and Britain's borrowing costs will rise still higher, destroying Healey's wafer thin fiscal headroom. Reeves presided over two disastrous budgets but did not trigger a fiscal crisis, surge in gilt yields or run on the pound. If Healey falls through that thin ice, he could get all three.
