New analysis reveals that Andy Burnham's tax cut and spending promises could drain up to £63 billion from government coffers by 2030. The commitments, which include areas like defense, social care, and housing, are predicted to result in a potential financial burden of £46 billion to £63 billion over the next decade, as reported by Capital Economics.
Ruth Gregory, the chief UK economist at Capital Economics, warned that the financial load on John Healey could push him into a difficult spot. She added that bond traders are already close to the brink in terms of tolerating additional borrowing. Since March, the government's fiscal headroom, which acts as a buffer against breaching its own fiscal rules, has deteriorated, the research group noted.
Among the largest costs, Gregory highlighted the proposal to make social care free at the point of use, which could increase annual spending by £18 billion. Another significant expense would arise from increasing council housebuilding to pre-war levels, which could demand an additional £12 billion to £23 billion in funding. Healey might also face an annual shortfall of £11 billion to meet his defense funding targets.
Burnham's pledge to unfreeze the personal allowance threshold could add £9 billion in costs. Additional measures, such as reductions in business rates, eliminating VAT from energy bills, and ending rough sleeping, could collectively add billions more. These moves place additional strains on the government's finances.
Capital Economics has questioned the viability of certain revenue-generating strategies proposed by Burnham and other Labour leaders. A plan to align capital gains taxes with income tax rates could reduce revenue by £7 billion as investors might either delay selling assets or take funds out of the UK.
Wes Streeting and several Labour MPs have supported the idea of aligning wealth taxes with income tax rates. Andy Haldane, former deputy governor of the Bank of England, cautioned Burnham against treating capital gains tax hikes as a tool for funding more spending. He suggested this approach might not yield the expected results.
Burnham argued that there is "flexibility" within the fiscal rules to allow for further investment. Gregory acknowledged that some room for borrowing is available, but stressed the bond market is "already close to the limits of how much extra borrowing it will tolerate." The fiscal headroom, which was previously estimated at £22.7 billion, is now likely closer to £10 billion due to the impact of energy price shocks.
Long-term gilt yields, which indicate government borrowing costs, have recently reached a century high and remain high. Gregory expressed doubts about whether all the commitments could be "realised in full," noting Burnham's reiteration of Labour's position not to raise income tax, national insurance, or VAT.