Here it comes again. Whoever Andy Burnham chooses to be his Chancellor of the Exchequer will face the same challenge as all their predecessors since Gordon Brown: producing ‘fiscal rules’ to reassure the City they will be prudent holders of the nation’s credit card.
With Britain’s national debt higher than it’s been for decades, and some marmalade-droppingly-naïve recent comments from Our Andy about funding defence spending with ‘war bond’ borrowing and not being in hock to the bond markets, the new rules will be a crucial early test of Manchesterism’s credibility. If he gets it wrong, Burnham’s eyelashes will sit alongside Liz Truss’ lettuce in pub quiz ‘odd one out’ rounds for years to come.
Burnham’s team clearly recognise the danger, and have moved to calm bond market fears by bringing heavyweight former Bank of England and Goldman Sachs economists Andy Haldane and Jim O’Neill into the team, and committing to keep Rachel Reeves’s fiscal rules unchanged.
If he gets it wrong, Burnham’s eyelashes will sit alongside Liz Truss’s lettuce in pub quiz ‘odd one out’ rounds for years to come
The problem is, choosing the loosest fiscal rules the bond markets will let you get away with isn’t the same as choosing the best rules to get Britain’s economy moving again. It’s the difference between scraping a pass in a few of your GCSEs, or acing them all with a string of grade 9s.
Which fiscal rules would give Britain that string of economic 9s? We should start by following the ‘golden rule’ of sustainable government finances, by only borrowing to invest in building new infrastructure which can be used by future generations, rather than to fund day-to-day spending instead. Rachel Reeves’s current rules promise to do it, but only as a ‘jam tomorrow’ pledge to be delivered in 2029, which means any hard decisions get postponed and it’s a rule with no teeth. An economically-serious Chancellor would publish a straight-line set of annual deficit cuts to bring day-to-day spending under control, so businesses and public services can plan ahead and investors know the difficult stuff won’t be ducked or put off.
Next, Andy Burnham’s new Chancellor should start controlling the red tape costs of any new laws and quango-imposed regulations by including them in the fiscal rules, treating them as seriously as traditional government spending for the first time ever. Every pound of red tape costs Britain’s economy the same as a pound of tax, so finding cheaper, more digital and less bureaucratic ways to deliver unchanged quality standards for our housing, businesses, workplaces and countryside would mean faster economic growth at zero cost to taxpayers.
Last but not least, any economically-serious new Chancellor must grip the huge and currently-hidden long term IOUs we’re handing future generations of taxpayers to look after our ageing population, by including the costs in the fiscal rules for the first time too. That means publishing annual government balance sheets of Taxpayer Net Worth, with a commitment to cut the net liabilities by a minimum amount each year until they are gone.
Finally, Manchesterism should lock in these new rules by embedding them in an Act of Parliament so they become legally binding and can only be changed with Parliament’s consent. There would be built-in stabilisers to cope with recessions or emergencies like pandemics or wars, but otherwise these much stronger and permanently-stable controls would cut the costs and risky uncertainties of investing in Britain. In a single stroke, they’d hugely improve our reputation as a safe, stable, commercially-attractive place for jobs, investment, wealth-creation and business growth.
These fiscal rules would put our economy on the best possible track, so Britain’s jobs, investment and exports all grow faster. But it’s a politically-steep and rugged pathway, instead of the wide, smooth, easier road to long-term mediocrity of doing the bare minimum the bond markets demand. Does Manchesterism have enough Northern grit and ambition to deliver what’s best for Britain? We’re about to find out.
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