Burnham has no scope to increase borrowing amid economic pressures
Ninoda.com – Burnham has no scope to increase borrowing according to a prominent economic think tank, as the government faces mounting financial challenges. Prime Minister Andy Burnham has announced a range of cost-of-living measures since taking office last week, but a major analysis suggests he will need to either raise taxes or reduce spending to fulfill his commitments on defence and household expenses. The National Institute of Economic and Social Research (Niesr) has cautioned that public finances will remain under pressure due to more persistent inflation linked to the ongoing Iran war.
Financial constraints limit policy options
The think tank questioned whether Burnham had “fully thought through” how his promises would be financed, but concluded that the prime minister will have to raise taxes or cut spending elsewhere. Stephen Millard, Niesr’s deputy director for macroeconomics, stated clearly: “There’s clearly no scope for increasing borrowing, so it is about choices.” This assessment reinforces the idea that Burnham has no scope to increase debt levels without risking economic stability. Labour’s manifesto pledge was to not increase taxes for working people – including income tax, VAT and national insurance contributions – which Burnham has said he will uphold.
Millard explained that Niesr was advocating for cost-of-living measures to be funded through higher taxes – “which could involve tax reform rather than higher marginal rates” – or spending cuts. He highlighted several areas where adjustments could be made. “People have talked a lot about the welfare bill – that is an obvious place to look,” he noted. “The triple lock on pensions, that is very, very expensive, and will get more expensive as we age.” He also pointed to potentially reforming council tax to move towards a land value tax system, or scrapping some VAT exemptions.
“Once you’ve done all of that, then I’m afraid I would break the manifesto promise and would be looking at the income tax rate.”
Niesr also said on Wednesday it expects inflation to keep rising until February 2027, peaking at 3.8% before falling back to the Bank of England’s 2% target. This prolonged inflationary period means that Burnham has no scope to increase borrowing without potentially exacerbating economic pressures on households and businesses alike.
Long-term outlook and fiscal discipline
The think tank said in its latest economic outlook that it does not believe the central bank will cut interest rates until 2028. Its Director David Aikman said that “treading water is not enough” to prevent the national debt from rising. “Every major shock this century has ratcheted the debt ratio higher, and none of that increase has been reversed,” he said. This historical perspective underscores why Burnham has no scope to increase borrowing significantly in the current economic climate.
The Treasury responded by affirming that the government will stick to its fiscal rules while investing in “the public services people rely on.” “Fiscal discipline is the bedrock of economic stability and national security,” a spokesperson said. With these constraints in place, policymakers must make difficult choices about where to allocate limited resources. As inflation continues to climb and interest rates remain elevated, the message from economic experts is clear: Burnham has no scope to increase borrowing without compromising long-term financial sustainability.
