Burnham's Cost-of-Living Plans Hit by Inflation and Borrowing Limits

A think tank has warned that there is no scope for extra government borrowing to fund new cost-of-living and defence commitments, as persistent inflation is expected to squeeze the public finances. The National Institute of Economic and Social Research (Niesr) forecasts Consumer Prices Index (CPI) inflation peaking at 3.8% in February 2027, rather than reaching the Bank of England's 2% target level until early 2029.

Prime Minister Andy Burnham has pledged to lead a 'cost-of-living Government', but Niesr's deputy director for macroeconomics, Stephen Millard, said cost-of-living support measures were not the answer. He argued that it was the Bank of England's job to hit the inflation target and proposed funding new commitments through higher taxes or cuts in spending elsewhere.

Millard suggested potential areas for tax reform include re-examining the welfare bill, pension triple lock, and council tax, which could be replaced with a land value tax system. He also warned that if these measures were not enough to fund defence investments, breaking Labour's manifesto pledge on income tax rates may become necessary.