Andy Haldane, the former Bank of England chief economist and one of Andy Burnham's financial advisers, has publicly criticized the government's fiscal plans, warning of dire consequences if Labour proceeds with further tax rises and borrowing.
In an article for the Financial Times, Haldane said Britain's last two Budgets were preceded by prolonged speculation about tax rises, which caused consumers and businesses to pause spending and slowed growth. He warned that the public sector balance sheet is in a "parlous state," with debt close to 100% of GDP, annual debt servicing exceeding £100 billion, and borrowing costs at their highest this century.
Haldane's Warning on Borrowing
Haldane noted that the UK has not run a fiscal surplus nor generated a percentage point of productivity growth since 2001. He argued that the country should not tax or borrow a penny more, as doing so would crush economic growth by crowding out the private sector.
He also cautioned that another bout of pre-Budget speculation about public spending, taxes, and borrowing risks disaster at a time when gilt yields are soaring and "bond markets are only a hiccup away from a heart attack."
Burnham's Spending Pledges
Burnham has been making new spending pledges, and Healey is reportedly considering changing fiscal rules to borrow an extra £9 billion a year by the end of parliament. Haldane did not mention Burnham or Healey by name but called for a moratorium on further rises in the tax and regulatory burden on consumers and businesses for the remainder of this parliament.
If Healey were to follow this advice, it could boost investment and spending, generating growth. However, it remains unclear whether he will listen, as Labour appears committed to its tax-and-spend approach.
