Great Britain's new Prime Minister Andy Burnham has had pleasant summer weeks, but now there is a threat of a cold and wet autumn. The budget plan casts its shadows ahead. The new Chancellor of the Exchequer, John Healey, has to present his budget in a month. In view of the budget gaps, tax increases are to be expected again. All sorts of suggestions and speculations are already circulating in London as to where Burnham and Healey will end up.
The previous Chancellor of the Exchequer, Rachel Reeves, financed her two budgets with tax increases in the mid double-digit billion range. These additional burdens have not been good for the economy. They slowed down investments, cost jobs and put a strain on the economy. The initial openness of business towards the government turned into a lasting critical view of Labour's course.
At Labor's annual conference in Liverpool, which begins this weekend, the party will probably once again bask in the joy of a new beginning. Their poll numbers have risen since the unpopular Keir Starmer was replaced by the ever-bright Burnham. But the former mayor of Manchester can't do magic either.
Higher deficits would be playing with fire
Like Starmer, he promises “change”. But there is no money. The biggest problem is the alarmingly rising interest rate. Given the national debt mountain of almost three trillion pounds, Treasury officials are watching developments with great concern. Driven by increased inflation, yields on ten-year bonds have recently climbed well above five percent, the highest level in a quarter of a century. Britain has to pay significantly higher interest rates than Germany or the heavily indebted countries France and Italy. Risking higher deficits would be playing with fire.
The biggest spending drivers in the British government budget are social, health and pension spending, which have been rising disproportionately for years. This is mainly due to the aging and sicker population. Under the Tories, pensioners were promised that their pensions would always rise faster than wages or inflation. This leads to an increasing redistribution from young to old. In addition, the welfare state is paying more and more for the increasing number of people who are on sick leave due to physical or psychological problems.
During the Starmer era, all attempts to curb the increase in spending failed due to bitter resistance from left-wing Labor MPs. Unless Burnham undertakes reforms, ever higher taxes are inevitable. At more than 37 percent, the tax rate has already climbed to its highest level since the Second World War.
“A socialist government with good Tiktok videos”
When Burnham took over as Labor leader almost three months ago, he promised “the biggest change in decades” in the kingdom. However, so far there is no sign of economic or social policy reforms that will bring more economic growth. Burnham is faced with the same mountain of problems as his predecessor, who failed. The promised growth was modest and the cost of living is high. In the NHS, patients often wait months for treatment, housing is too scarce and expensive, and illegal immigration has been slowed down but not stopped. Things are not going well with the kingdom's armed forces and defense capabilities. Households and industry complain about the high energy costs, which are becoming a location risk.
Quite a few of Burnham's supporters hope that he will take a significantly more left-wing course in economic policy. Burnham believes that “good growth” can be generated through government money, more intervention and regulations. He wants “more public control,” particularly over water and energy suppliers. However, the considered nationalization of the ailing Thames Water company would cost billions. The Labor left dreams of more redistribution and higher taxation of the rich, even though alarming numbers of the very wealthy are already leaving, meaning the kingdom is losing some of its biggest taxpayers.
The socialist direction that parts of the Labor Party are heading in is worrying economists. Former central bank chief economist Andy Haldane, whom the prime minister actually wanted to recruit as an adviser, warned: Burnham's government runs the risk of becoming a "traditional socialist government" that relies on high taxes and high spending - only with better Tiktok videos. You often hear this accusation against Burnham: good production, but little substance.
