Andy Burnham's Economic Adviser Backs Billions More in Borrowing for Investment

Jim O’Neill, an economist tapped by Andy Burnham to be his chief economic adviser, has advocated for billions of pounds in additional government borrowing to fund infrastructure investment. This stance signals a potential departure from the policies associated with Keir Starmer.

O’Neill proposed the creation of an independent body, similar to the Office for Budget Responsibility (OBR), specifically for infrastructure spending. This body, he suggested, could be empowered to invest significantly more in major projects.

While such increased borrowing might initially concern bond markets regarding a potential Burnham government, O’Neill argued that it would adhere to existing fiscal rules and offer sufficient transparency to reassure investors. He stated, “There is a lot more room under the existing fiscal rules to borrow for investment, and the next chancellor should take advantage of that. We can do way more to boost infrastructure projects, and that is what we should be doing.”

With Burnham widely expected to succeed Starmer as Prime Minister, attention is focusing on his economic policies, which are perceived as being more left-leaning than those of the current government. Burnham is scheduled to deliver a speech next week outlining more of his potential programme, including significant measures on devolution.

In recent weeks, Burnham has consulted with three prominent economists to shape his policy agenda: Andy Haldane, formerly of the Bank of England; Richard Hughes, the former head of the OBR; and O’Neill himself, who previously served as chief economist for Goldman Sachs.

The selection of the next Chancellor is also a key consideration, with Ed Miliband, the energy secretary, and Wes Streeting, the former health secretary, reportedly leading candidates.

Last year, Burnham faced criticism regarding a rise in UK borrowing costs after suggesting the UK should not be beholden to bond markets. This led to speculation he might disregard current fiscal targets if he were to become Prime Minister. However, during his campaign for the Makerfield seat, Burnham committed to adhering to existing fiscal rules and Labour's manifesto pledges, which include not raising income tax, VAT, or national insurance.

The Guardian reported on Monday that Burnham’s transition team had discussed a government role for O’Neill, potentially as his chief economic adviser in Downing Street. Other possibilities include a return to the Treasury, where he served as a minister under the Conservative government, or an advisory role on devolution.

O’Neill declined to comment but reiterated his view that Burnham should increase infrastructure spending significantly within the existing fiscal framework.

Burnham has previously advocated for enhanced investment in northern transport projects, such as a new underground station at Manchester Piccadilly. O’Neill, a former chair of the Northern Powerhouse Partnership, has also been a proponent of Northern Powerhouse rail proposals.

Additional borrowing would be recorded on the government's balance sheet. However, under changes to fiscal rules introduced by Rachel Reeves, this could be offset by the value of the assets acquired through the spending.

O’Neill suggested that bond markets would be more receptive to additional debt if managed by an independent body that transparently publishes its growth-boosting impact assessments for projects. This could be achieved by transforming the National Infrastructure and Service Transformation Authority (Nista), currently an agency within the Treasury, into an independent entity. “We need Nista as a separate, much more transparent entity,” he said. “The public then gets a clearer sense, as do financial markets, as to what the multiplier effects [on growth] would be.”

In a recent Sky News interview, O’Neill elaborated on this idea, stating: “One thing I think Andy might explore is a much more publicly transparent entity – a sort of infrastructure version of the OBR – in which the whole country can see regularly, transparently which big infrastructure projects are going to make a difference and which ones won’t.”

Commenting on the political debate surrounding the high-speed rail line to Manchester (HS2), he added: “[That would] get away from this very personal, subjective view: I love HS2, I hate HS2, and so on.”