A former Bank of England chief economist has warned he expects to see “further borrowing” and “further tax rises” in next week’s Budget as he threw his weight behind Kemi Badenoch’s plan on the UK economy.
Speaking at an Ipsos event, Andy Haldane said the Budget has been a “less lengthy and a less leaky Budget process” compared to its predecessors, which is a “good thing”.
But he cautioned that this will be a Budget “for the backbenchers rather than business or the bond markets” as he warned that Labour were overseeing “expensive” plans for a larger size of the state.
He also poured scorn on widely-expected Labour plans to impose “windfall” taxes on British banks. “The harm that’s done is that that tells an investor in UK business there’s a chance that the tax man’s coming for your profits”, he said.
The remarks follow an article by Haldane in which he endorsed the Tories’ plan to cut business and employment taxes in order to drive economic growth.
The economist, who is now the president of one of the country’s largest business lobby groups, was one of the main advisers to Burnham on his by-election campaign in Makerfield. City AM revealed he did not take up any official role in the government after Burnham took to Downing Street.
“The Labour Party’s plan for an expansive (and expensive) state sits uncomfortably with this precarious fiscal backdrop,” Haldane wrote in the Financial Times.
He added that “the Conservatives’ economic plans are better suited” to boosting growth “through cuts to business and employment taxes and regulation to unleash animal spirits; and by slimming government spending to lower borrowing costs”.
“In today’s straitened circumstances, the rightward fork is far more likely to succeed. I say that despite being firm in my belief that Conservative austerity in the 2010s was an act of economic vandalism and that the rapid expansion of the social safety net after Covid and the Russia-Ukraine crisis was the correct policy course at the time.”
Haldane’s comments are particularly awkward for Burnham and the Chancellor, John Healey, ahead of next week’s Budget. The Chancellor is not expected to make large tax hikes after ruling out an increase to capital gains taxes although radical changes in spending plans are unlikely to be forthcoming.
Badenoch issues challenge to Healey
Badenoch urged the Chancellor to cut spending across several parts of the state in order to fund an uplift in defence spending to three per cent of GDP and slash taxes for businesses in order to deliver growth. She said a ‘nothing to see here’ Budget could be more damaging for the UK economy than any fiscal statement delivered by Healey’s predecessor Rachel Reeves, who increased taxes cumulatively by nearly £70bn.
She said at a press conference on Tuesday she was prioritising tax cuts that would boost Britain’s economic fortunes. The party has pledged to cut spending by more than £70bn in order to fund huge tax cuts related to housing, including stamp duty and inheritance tax.
“If, at this Budget, he does not find the money to get to three per cent, John Healey has an awful lot of explaining to do,” Badenoch said.
“But we are hearing that the decision has been kicked into the Spending Review, and the Spending Review itself has been kicked into next autumn. If this is true, it is unconscionable.”
Her speech focused on the country’s debt load. The Tories have said that for every £2 of savings they identify, £1 will be allocated to narrowing the deficit.