Burnham Unveils £2bn Spending Amidst Economic Headwinds
New commitments face inflation and growth challenges as NIESR warns of fiscal pressures.
Image: Eddie Pollard / AI
Callum Smith
Andy Burnham has announced new spending commitments totalling approximately £2bn, including a £2 bus fare cap, VAT cuts on energy bills, and a 20 per cent reduction in pub business rates.
Economic growth projects a significant slowdown, with forecasts indicating a mere 0.1 per cent expansion in the third quarter of 2024. This sluggish trajectory complicates the nation's fiscal outlook, limiting future spending capacity.
The UK government inherited the highest borrowing costs among G7 nations, adding immense pressure to public finances. This burden constrains future spending and investment.
A demographic crisis looms as the National Institute of Economic and Social Research (NIESR) projects over 1 million young Britons, aged 16-24, will remain not in education, employment, or training (NEET) through 2030. This persistent challenge demands immediate intervention.
Andy Burnham specifically targeted these 1 million young people for support. He proposes more extensive mental health services and a comprehensive revamp of the education system.
The NIESR warns that the Iran war could force difficult trade-offs in the next autumn budget. High oil prices and inflation drive this potential fiscal squeeze.
Stephen Millard claims inflation will still rise even if peace restores relatively quickly in the Middle East. This necessitates difficult decisions for the new chancellor regarding funding recent policy announcements.
Financial markets expect the Bank of England to hold interest rates steady on Thursday, September 19, 2024. However, they anticipate a subsequent hike to 4% later in 2024.
Labour's manifesto pledged no tax increases for working people, specifically income tax, VAT, and national insurance contributions. This commitment faces intense scrutiny given the current economic climate.
John Healey reportedly seeks to fund new spending through selling war bonds. This unconventional approach highlights the depth of the fiscal challenge.
The NIESR claims the new prime minister faced a “challenging inheritance.” Plans to revamp public services would meet severe pressure from persistently higher prices.
NIESR indicated that The new prime minister faced a challenging inheritance. Plans to revamp public services would meet severe pressure from persistently higher prices.
The NIESR also claims Chancellor John Healey would be forced to find an extra £24bn by the end of the decade. This sum is necessary to maintain services and real-terms welfare payments.
Stephen Millard claims tax changes should receive priority over increases in existing taxes. This approach aims to broaden the tax base rather than deepen existing burdens.
Millard also claims the government should phase out numerous exemptions and discounts affecting VAT. These include those on energy and children’s clothes.
Stephen Millard claims the UK economy proved “surprisingly resilient” in the first half of 2024. Despite this, a significant slowdown remains imminent.
The Office for Budget Responsibility estimated in March 2024 that the Treasury held approximately £22bn of spare capacity above existing spending commitments. This figure contrasts sharply with the NIESR's projections for future funding needs.