Burnham Warned He Must Raise Taxes or Cut Spending to Fund Priorities

Andy Burnham has been warned by economists at the National Institute for Economic and Social Research (NIESR) that he will have to raise taxes or cut spending if he wants to fund his new priorities. The NIESR, a leading economic think tank, cautions that there is no capacity to borrow any more and that inflation will push up the cost of living much higher than the Bank of England (BoE) is forecasting.

The warning comes amid questions over how Mr Burnham plans to pay for giveaways he announced last week, including a £2 bus fare cap, cutting VAT from energy bills, and slashing pub business rates by 20 per cent, all amounting to around £2bn. NIESR director David Aikman said: 'It's a tough, tough job being chancellor and I wouldn't wish it on anyone.'

The NIESR projects inflation will rise to 3.8 per cent next year, which could see the BoE forced to hike interest rates again to push it down to the government's 2 per cent target. Economic growth is set to plummet to 0.1 per cent in the third quarter, and borrowing is at capacity so spending commitments will have to be found through tax rises or spending cuts.

NIESR warned that Mr Healey faces a 4 per cent real spending squeeze by the end of the decade, equating to approximately £24bn in 2023 prices, because of higher and more persistent inflation. The think tank also projected that unemployment will rise modestly to a peak of 5.3 per cent in late 2026 before easing back to its natural rate of 5 per cent by late 2028.

The NIESR's findings come after Mr Burnham made around £2bn of new commitments in his first week and alongside widespread speculation that Mr Healey wants to find that cash through selling war bonds, an option his predecessor Ms Reeves warned was 'just another form of borrowing'. However, the think tank stressed that any new commitments on defence funding and improving living standards must be funded through taxation or spending reallocations rather than additional borrowing.