Burnham's growth pitch runs into the hard limits of the fiscal rules

Burnham's growth pitch runs into the hard limits of the fiscal rules Proactive uses images sourced from Shutterstock Andy Burnham's plan to reshape the British economy will quickly collide with the same fiscal constraints that hemmed in his predecessor, according to analysis by UBS. The Swiss bank assessed the economic approach of the Greater Manchester mayor, who is the odds-on favourite to replace Sir Keir Starmer as Labour leader and prime minister. Burnham has set out a 10-year growth strategy built on shifting power from Whitehall to the regions and expanding public control over utilities such as water, energy, transport and housing. The centrepiece is a large council housebuilding programme, alongside support for domestic industry and measures to lift youth employment. The thinking draws on what supporters call "Manchesterism", the argument that the state should prevent market failures rather than pay to compensate for them after the event. Its proponents contend that greater public provision of essential services would lower costs, since public bodies can borrow more cheaply than private firms, and reduce the welfare bill over time. UBS said the central question for financial markets is what this means for the public finances. Crucially, the bank noted that Burnham has softened his earlier scepticism about bond markets and now says he supports the fiscal rules, a position echoed by influential Labour-affiliated groups. That leaves him boxed in. The government currently operates two constraints: a stability rule requiring day-to-day spending to be balanced by the third year of the forecast, and an investment rule requiring public debt to be falling as a share of the economy over the same horizon. UBS argued there is more scope to bend the investment rule than the stability rule, since the latter is already a demanding target that markets would be reluctant to see loosened. One option would be to extend the timeframe over which the rules must be met. Another would be to channel more money through public financial institutions such as the National Wealth Fund, whose loans create offsetting assets that do not eat into the headroom under the investment rule. The pressures are mounting regardless. The bank pointed to a recently announced £15 billion increase in defence spending, of which £4.7 billion still needs to be funded, plus likely further energy support before winter. With revenue options limited by pledges not to raise income tax, VAT or corporation tax, UBS expects talk of tax rises to return before the autumn Budget, which it anticipates in November. The key test, the bank said, is whether Burnham keeps those tax promises at all.