Britain’s prime minister-in-waiting, Andy Burnham, promises radical change while sticking to the country’s fiscal rules, a 25 years old strategy.
As reported by Reuters, Burnham has pledged to keep the UK’s existing fiscal rules, which are self-imposed limits designed to reassure investors that the government will manage borrowing responsibly.
These rules include balancing day-to-day spending with tax revenue over time and reducing debt as a share of the economy
So far, Britain’s ÂŁ2.9 trillion ($3.87 trillion) government bond market has shown little sign of concern, helped by falling oil prices since the de-escalation of the Iran war, but also Burnham’s efforts to burnish an image of fiscal responsibility.
As reported, Burnham has yet to set out how he will square demands for spending and borrowing against his commitments to the fiscal rules and the Labour Party’s 2024 manifesto, which ruled out raising taxes on working people.
In March, Britainâs Office for Budget Responsibility estimated that finance minister Rachel Reeves’ plans would meet the rules with a current budget surplus of ÂŁ24 billion by 2029/30.
Bee Boileau, senior researcher at the Institute for Fiscal Studies, a think tank said, “The idea that this government might promise fiscal consolidation in the future, while topping up spending plans in the near term, seems quite plausible to me.â
Once in power, the new prime minister could publish an initial budget this year that mostly sticks with current plans, meeting the rule to balance the current budget in the 2029/30 financial year while teeing up his defining Budget in 2027.
From April 2027, the three-year target to balance the budget will shift to 2030/31, which will give Burnham the chance to shift fiscal consolidation past the next election, due in mid-2029 at the latest, while potentially increasing near-term spending.
Jim O’Neill, a former British government minister who was chief economist of Goldman Sachs and has recently advised Burnham and argued that Britain should borrow more to boost infrastructure, something the fiscal rules would allow for.
While Emma Moriarty, portfolio manager at CG Asset Management said the market would still be focused on the bottom line, whatever the stated purpose of the borrowing.
“Meeting the fiscal rules is a necessary but not sufficient condition for the bond markets.”
“We’re basically trying to protect ourselves from inflation, and we’re trying to limit capital losses from any kind of potential negative gilt market shock around developments coming from the Burnham government,” she added.
