Andy Haldane, the president of the British Chambers of Commerce and an informal economic adviser to Andy Burnham, has warned that the government is fiscally “skating on pretty thin ice” and cautioned against further tax rises in the Budget on 28 October.
In an interview with CNBC, the former Bank of England chief economist said “nothing would be worse both economically and politically, than if the ice were to crack beneath our feet”.
Haldane said “the single most effective way” to avoid that outcome would be to “appease financial markets” and for the government to “show that it’s able and willing to take the knife to public spending”.
“That is the Achilles’ heel of this government,” he said. “Unless and until action is taken on that, Andy will remain, alas, in hock, to use an expression, to the bond market.”
UK government borrowing costs have risen to multi-year highs in recent weeks during a global sell-off in bond markets, reducing the government’s fiscal buffer before the chancellor, John Healey, delivers his first Budget.
Haldane said there was a “real sense” in the private sector that companies were “taxed out”, and that government spending and borrowing were too high.
Business Matters reported yesterday that Jeremy Hunt, the former Conservative chancellor, had urged Healey not to raise the bank surcharge in the Budget.
Burnham delivered his first speech as prime minister to the Labour Party conference in Liverpool last week. He pledged to scrap the pensions triple lock to fund social care for all, repeal the “ideological” ban on the public ownership of some utilities and set out a path to potentially rejoining the EU.
Haldane said “precious little” was said in the speech about “the enablers of growth, and in particular about the role of business in driving growth in every postcode”.
He added: “I hope that was a political judgement rather than economic judgement.”
Haldane described tackling the triple lock as a “good first instalment” on cutting spending, but said Burnham “spent the gift straight away, and probably some actually”.
Shevaun Haviland, the director general of the British Chambers of Commerce, said after the speech that the Budget would be the “critical test” for the government.
Haldane and Lord O’Neill of Gatley, a former chief economist at Goldman Sachs who worked with Burnham when he was mayor of Greater Manchester, have both been outspoken and have not taken up formal advisory roles.
Haldane said last month that “the market now suspects that this is a traditional tax-and-spend socialist government with better TikTok videos”.
Expanding on that remark in the CNBC interview, he said he was “just mirroring the sentiment I’d picked up from both financial market participants and from businesses about just what was the type of government we were dealing with here”.
He added: “I think most would say that the great driver, the great engine of growth, is the private sector.”
Haldane said he had not taken up a formal role in government advising the prime minister because he believed “sometimes having a degree of distance from the object is helpful for speaking truth to power”.
“I hope one of the things that Jim and I can bring is perspectives brought from different sectors and different experiences, and that experience is best bought, in my view, by being slightly outside the tent and advising from an arm’s length in ways that I hope are helpful,” he said.
He said “the very good thing about Andy and this team is that they are persuadable on the arguments of the case”, and that he had been “speaking up a little bit about the perils running into this budget”.
