Former Bank of England chief economist Andy Haldane says Britain is on thin ice fiscally ahead of its Oct. 28 Autumn Budget, urging Prime Minister Andy Burnham's government to cut spending rather than raise taxes. Britain already carries the highest government borrowing costs in the G7, and Haldane warns financial markets need to see the government is willing to cut public spending.
Britain is on thin ice fiscally with just weeks left before its Autumn Budget, former Bank of England chief economist Andy Haldane told CNBC. Haldane, who sat on the central bank's Monetary Policy Committee until 2021, said the government must curb public spending and avoid painful tax increases before the budget update due Oct. 28.
Haldane warns the ice could crack
Speaking at the How Britain Can Win conference hosted by Goldman Sachs 10,000 Small Businesses UK, Haldane said, according to CNBC, the U.K. is "skating on pretty thin ice in fiscal terms." He added there is a risk the ice could crack, and that showing financial markets the government is willing to cut spending is the single most effective way to prevent that.
Burnham, who replaced Keir Starmer as prime minister over the summer, has previously criticized U.K. fiscal policy as being in hock to bond traders. His rise to the top of the Labour Party earlier this year unsettled bond investors, who viewed him as more left-leaning than his predecessor.
Highest borrowing costs in the G7
With yields on U.K. government bonds, known as gilts, surging in recent years, Britain now has the highest government borrowing costs in the G7. Haldane said the U.K. is especially exposed because the country functions as a leveraged bet on the world economy, with inflation that runs higher and stickier than peers and growth that runs lower and stickier.
Burnham's push to end the U.K.'s so-called triple lock, under which the state pension rises with the highest of inflation, average earnings growth, or 2.5%, is a good first step in Haldane's view. Still, he said welfare remains a totemic issue for both the governing Labour party and the bond market.
Banks brace for a windfall tax
This will be the first Autumn Budget unveiled by Burnham's administration, with finance minister John Healey saying he wants to carve out a fiscal buffer against uncertainty. Burnham has refused to rule out tax hikes, and British press reports say a windfall tax targeting banks could be on the table.
Lenders operating in the U.K. have lobbied against that proposal, and JPMorgan boss Jamie Dimon met with Burnham and Healey in London last month. Haldane warned against targeting businesses in the budget, saying the private sector already feels taxed out and that the current government is underweight in economic and financial expertise.
Source: CNBC
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