Ex-Bank of England Economist Warns PM Against 'Truss-Style Crisis' Without Spending Cuts

Prime Minister Andy Burnham risks a crisis mirroring Liz Truss's economic turmoil if public spending is not significantly reduced in the upcoming Budget, a former chief economist at the Bank of England has warned. Andy Haldane cautioned that the government's approach risks delivering a 'manana' budget that fails to address the current fiscal urgency, potentially 'cratering' the economy.

Haldane, who previously advised Burnham, stated that the government has not fully recognized its precarious financial position, suggesting Britain is nearing a point where further borrowing and taxation are unsustainable. He argued that a reduction in taxes and the size of the state is necessary to stimulate economic growth.

Furthermore, Haldane criticized the government's proposed £2 billion tax increase on banks, labeling it 'delusional.' He suggested this move demonstrates a lack of resolve to cut public spending and sends a negative signal to businesses that profits will be met with higher taxes. Haldane believes that while banks may be able to absorb the tax hike, the ultimate cost will be borne by ordinary consumers and businesses, making it a tax on the public rather than the institutions themselves.

"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'," Haldane told The Spectator. "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."

Haldane emphasized the critical importance of maintaining confidence in financial markets, warning that the Prime Minister's greatest risk is losing the "dealing room." He drew a parallel to Liz Truss's premiership, suggesting that a loss of confidence from financial markets could lead to an even more painful downfall. The Autumn Budget is scheduled for October 28, with Chancellor John Healey aiming to address public finances and provide cost-of-living support.

The City of London, through bodies like the Confederation of British Industry, is reportedly opposing the tax increase, arguing it would be an "own goal" for the UK economy and that British banks already face higher taxes than competitors in New York and Frankfurt. Despite these concerns, Labour's union allies are pushing for the tax hike, citing bumper profits for lenders due to rising interest rates. Barclays recently reported a 12% increase in quarterly profits to £2.3 billion. Chancellor Healey is widely expected to raise the surcharge on corporation tax for banks, currently at 3%.