Andy Burnham is worried about becoming Liz Truss. In an interview deemed so important it currently appears on the New Statesman’s website three times, he said: ‘We’ve got to get beyond this thing of being in hock to the bond markets.’ His worry, it seems, is that the main economic policy he’d like to introduce, nationalisation of everything, would require so much borrowing that it would cause the markets to freak out á la Truss and collapse a nascent Mancunian ministry.
Since the interview one or two people have pointed out that we can’t really just choose to ignore the bond markets – much as Burnham might like to. And so a number of explanations have been offered up for what Burnham really meant. The latest, through his interviewer and New Statesman editor Tom McTague, is that there were two core reasons we’re so vulnerable to the ups and downs of debt trading:
- ‘We’ve lost control of public spending through privatisation’
- ‘First past the post creates fragile governments unable to reform the system’
I have some sympathy for the second point, though in the past two elections the FPTP system has delivered majorities of 80 and 174. Still, no leader has been able to get the fiscal reforms that are needed through their own MPs, even with these stonking majorities. Indeed, Keir Starmer couldn’t even force through a £5 billion cut to the soon-to-be £100 billion sickness benefit budget. But I’m not all too sure moving to a system of proportional representation, and the smaller majorities it produces, fixes any of the problems the bond market is allergic to.
His first point totally ignores the why, how and when of soaring public spending. Namely the fact the public sector has grown by 700,000 employees since before the pandemic (without the accompanying productivity gains you might expect); or the fact that 2.4 million more people are claiming out-of-work benefits; or the fact that public spending has remained roughly 5 percentage points of GDP higher than it was in 2019, while tax receipts aren’t even two points higher.
Speak to bond traders and you may be alarmed to find most of them don’t even follow politics or current affairs all that much. I’ve spent time with some who couldn’t even tell you what the Chancellor’s ‘ironclad’ fiscal rules are. Instead, they make decisions based on two things: where they think inflation is going and where they think the nations’ path on borrowing is heading. The answer to the first question seems to be ‘up’ and the second seems to be ‘into the stratosphere’.
Whether it’s Starmer, Burnham, Farage, or a Tory replacement for Badenoch – whoever is leading the country will have to confront those two problems if they want to escape the grip of the bond markets. If they do not close the gap between what we spend and what we tax, either with serious cuts or serious tax rises, then gilt traders will continue to nip at their heels.
You cannot operate as a serious country when you’re spending twice your defence budget servicing historic debt. Or when you’re spending more on debt in a single month than you do on policing your borders in an entire year.
The policy mix Burnham is offering to combat Britain’s ills – taxing London to feed the north and bringing in a 50p top rate of tax – are not even thinkable without getting our debt and spending addictions under control. A left wing, redistributive government might be able to enforce those policies and take the fiscal hit if our economy was booming. But while growth stagnates, they’re nothing more than fiscal fantasies.
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