Ex-Adviser Warns Prime Minister Risks Truss-Style Crisis Over Spending

Prime Minister Andy Burnham faces a potential crisis reminiscent of Liz Truss's premiership if public spending is not significantly reduced in the upcoming Budget, according to a former key economic advisor.

Andy Haldane, the former chief economist at the Bank of England, warned that the government risks delivering a "mañana" Autumn Budget that fails to address the "urgency of now" by postponing decisions on public spending. He stated that Britain is "close to being taxed out and maxed out in terms of borrowing," highlighting a precarious fiscal position that the government has not fully acknowledged.

Haldane, who informally advised Burnham when he served as mayor of Manchester, urged the government to cut taxes and reduce the size of the state to stimulate economic growth. He criticized the plan to increase taxes on banks, a move he deems "penny wise, pound foolish," arguing it sends a broader message that "the taxman cometh" for businesses that turn a profit. He believes Burnham, while potentially a "great Prime Minister," has an "economy blind spot," which could render Britain's fiscal future precarious.

"The penny has not yet fully dropped, including in Downing Street," Haldane told The Times. "You see that in us having the highest borrowing costs in the G7, despite not having the highest debts and deficits."

He drew a parallel to Liz Truss's economic turmoil, suggesting that Burnham's greatest risk is losing the confidence of financial markets, or "the dealing room," which would be a more painful downfall than political opposition.

These warnings come as Haldane previously described Labour's proposed £2 billion tax increase on banks as "delusional." He argued that while banks might be able to afford higher taxes, the ultimate cost would be borne by ordinary households and businesses. The City of London is lobbying against the proposed tax hike, with the Confederation of British Industry calling it an "own goal" and banks asserting they already pay higher taxes than competitors in New York and Frankfurt.

Chancellor John Healey is reportedly considering an increase to the surcharge banks pay on corporation tax, from its current three percent, as he seeks funds to improve public finances and support citizens facing the cost of living. This push is supported by Labour's union allies, who point to the bumper profits banks are currently enjoying due to rising interest rates.

Haldane explained his concerns about the bank tax, stating, "If you said the effect of this was just to take a few billion out of the bottom line of banks, you might say, 'they can afford it'. And they can afford it. My cautionary points around that will be twofold. Who do you think really is paying for that tax rise on the banks? I will give you a clue, it will not be the banks, it will be you and me as customers of banks. It's slightly delusional to think this isn't a tax on us rather than a tax on them."