Haldane warns UK must cut spending to avoid fiscal crisis

Former Bank of England chief economist Andy Haldane has urged the UK government to cut public spending ahead of the autumn budget, warning that the country's fiscal position is unsustainable. Haldane, who served on the Bank of England's Monetary Policy Committee until 2021, described the fiscal situation as being on a 'narrow ridge,' emphasizing the need to reassure financial markets about the government's commitment to spending control.

The autumn budget, scheduled for October 28, will be the first for Prime Minister Andy Burnham's administration. Haldane cautioned against relying on tax increases, particularly those targeting businesses, which he views as the main drivers of economic growth. He identified spending control as the government's 'Achilles' heel,' noting that inaction could leave Burnham dependent on the government bond market.

The UK currently faces the highest cost of government borrowing among G7 countries. The yield on 30-year UK government bonds stood at 5.8796%, while the yield on 10-year bonds was 5.3605%. Haldane attributed the country's financial pressures to higher inflation, weak economic growth, and prolonged difficulties in balancing public finances. The government has prioritized reducing the cost of living, devolving powers to local authorities, and increasing defence spending in its budget policy.

Finance Minister John Healey has indicated plans to create a fiscal reserve for uncertainty, though the government has not ruled out tax increases. The British press has speculated about a potential windfall tax on banks, which Haldane advised against due to its potential negative impact on the private sector.