Prime Minister Andy Burnham may face challenges in providing “fundamental” cost of living support without increasing taxes, according to economists. This assessment follows a recent surge in government bond yields and July's higher-than-anticipated government borrowing figures.
The elevated gilt yields and pressure to mitigate the energy price shock suggest that Mr Burnham and Chancellor John Healey might need to reallocate existing budgets or raise taxes to introduce new spending packages. Ten-year gilt yields, a benchmark for government borrowing, reached over 5.1 per cent on Tuesday before a slight decline.
Matt Swannell of ITEM Club indicated that current bond market pricing could reduce the £23.6bn fiscal headroom by approximately £7bn, potentially limiting the Chancellor's flexibility. He suggested the government might continue focusing on lower-cost measures, such as bus fare caps and the planned suspension of VAT on electricity bills, with more substantial support requiring spending cuts or tax increases.
Analysis from Capital Economics suggests there will be limited capacity for increased borrowing in the upcoming Budget, with a maximum of around £15bn deemed acceptable, making tax rises probable.