Should Andy Burnham assume the role of Britain's next Prime Minister, he is likely to confront a significant fiscal crisis, according to analysis by Hamish McRae. Government borrowing has surged, with recent figures indicating a substantial overshoot of official forecasts.
In May, the government borrowed £23.3 billion, considerably higher than the Office for Budget Responsibility's (OBR) £17.7 billion forecast. This marks the second consecutive month of exceeding targets. For the first two months of the current financial year, total government borrowing has reached £46.3 billion, an increase of £8.9 billion compared to the same period in 2025 and £7.7 billion more than the OBR had projected.
This escalating debt has led to increased borrowing costs for the UK. The nation is now paying more to borrow than other major economies, with rates for ten-year debt recently being up to half a percentage point higher than those for the United States. This premium, colloquially termed the 'moron premium' by some market participants, is expected to rise further if Mr. Burnham were to become Prime Minister, McRae suggests.
While Burnham has previously stated a commitment to adhering to the OBR's fiscal rules, the current financial trajectory raises questions about the feasibility of this. Analysis suggests that based on the public accounts for April and May, the government is already on course to breach these rules. Furthermore, the existing rules may not be sufficiently stringent to ensure sustainable finances.
The primary driver of this fiscal strain appears to be increased government spending, rather than shortfalls in tax revenue. Tax receipts in April and May have largely met expectations. However, government expenditure has exceeded budget by £4 billion. This rise is attributed to two main factors: higher-than-anticipated general spending, including social benefits, and a significant increase in debt interest payments, largely driven by higher inflation.
Debt interest payments reached £11.7 billion in May, marking a record high for that month. Approximately a quarter of the UK's national debt is linked to the Retail Prices Index (RPI), which has recently been higher than the Consumer Price Index (CPI). The OBR's forecasts are contingent on a sharp improvement in public finances in the latter two years of its projections. McRae contends that these projections are based on the government's stated intentions, which may be unrealistic, particularly regarding departmental spending cuts planned before an election.
McRae posits that the narrative of a £22 billion black hole, as previously described by Rachel Reeves, was an exaggeration to justify tax increases. He argues that a far larger, 'slow-motion car crash' in public finances is the more pressing issue. Burnham's advisory team reportedly includes prominent economists such as Jim O’Neill and former Bank of England chief economist Andy Haldane, as well as former OBR head Richard Hughes, suggesting access to strong economic counsel to navigate these challenges.