Ex-Bank of England Economist Warns UK on 'Thin Ice,' Urges Spending Cuts

Britain is "skating on pretty thin ice" financially and must significantly cut public spending to avoid economic and political instability, according to Andy Haldane, a former chief economist at the Bank of England and an informal advisor to Prime Minister Andy Burnham.

Haldane warned that further tax hikes would be "disastrous" and could lead to a sharp decline in economic growth. His comments come as volatile bond markets have driven the cost of government borrowing to a 28-year high, diminishing the UK's financial flexibility ahead of the upcoming budget.

"Nothing would be worse both economically and politically, than if the ice were to crack beneath our feet," Haldane stated in a recent interview, emphasizing that the "single most effective way" to reassure financial markets is for the government to demonstrate a commitment to reducing public expenditure.

He described the government's approach to public spending as an "Achilles' heel," suggesting that without action, Prime Minister Burnham will remain beholden to the bond market.

Haldane, who also serves as the president of the British Chambers of Commerce, expressed concern that the government is "significantly underweight in its economic and financial expertise." He noted that the market's perception of the current administration has been that of a "traditional tax and spend socialist government with better TikTok videos," a sentiment he has previously voiced.

The former chief economist advised against the government considering tax increases on sectors such as banking, the North Sea oil industry, or wealth creators, deeming such measures "disastrous" in the current economic climate. He believes that imposing higher taxes would damage fragile investor confidence and risk "cratering growth."

"The signal that would send about the ease and attraction of doing business in Britain would risk cratering that confidence, and therefore cratering growth," Haldane explained. He questioned the sustainability of a system where "the investor's perception is that the taxman takes the upside, and the investor takes the downside?"

His remarks follow reports that billionaires with substantial assets have relocated from the UK since the current government took office. The pressure on UK gilts, or bonds, is attributed to global inflation, exacerbated by the Iran war, and uncertainty surrounding the government's strategy for managing national debt.