DeVere Group: Burnham is maxing out Britain’s credit card
Tax rises and increased government borrowing now look almost inevitable under Andy Burnham, warns Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory organizations.
The warning comes as Prime Minister Andy Burnham told the BBC the NHS will 'collapse' unless social care is reformed, while admitting he cannot put a timeline on the fix. It follows a week that has already delivered a rough sleeping fund, an electricity VAT cut, and a bus fare cap, all signed off while Parliament is in summer recess and before a single line of the autumn Budget exists.
'Seven days in, and Britain already has a bill north of £1.7 billion,' says Nigel Green. 'Parliament is not even sitting. Imagine what happens when it is.' Bond markets reacted within hours of Burnham entering Downing Street. The 10-year gilt yield pushed back above 5%. The 30-year hit 5.75%, a two-month high, the moment the new Prime Minister talked about fiscal flexibility.
'Investors don’t wait for a Budget speech,' says Nigel Green. 'They price the risk today. The bond market has already voted, and the verdict is not flattering.' The scale of the challenge is stark. Public borrowing hit £23.3 billion in May alone, up more than 30% year on year. Debt interest for that month was the highest on record. Public debt is above 95% of GDP, the worst level since the 1960s.
'Burnham inherited a maxed-out credit card and he’s still tapping it,' says Nigel Green. 'A Prime Minister cannot warn that the NHS will collapse, admit he has no timeline to fix it, then keep signing cheques as if the Treasury is bottomless. Something gives. It will be your taxes, or it’ll be your mortgage.'
Nigel Green says there are only two routes to fund pledges on this scale, and every signal from Downing Street points to both being used at once. 'Households should brace for a squeeze on income tax thresholds, dividends, capital gains, and pensions relief,' says Nigel Green.
'Fiscal drag has already dragged millions into higher bands without a single rate changing. There’s almost inevitably more to come.' The borrowing route carries its own cost, he warns, one already showing up on mortgage statements rather than tax bills.
'If it’s borrowing instead, ordinary families still pay, just somewhere else,' explains the deVere CEO. 'Higher gilt yields feed straight into mortgage pricing. Lenders have already added up to 0.35 percentage points onto fixed rates. Burnham’s spending is already sitting on people’s mortgage statements.'
The pressure is compounded by defence commitments inherited rather than chosen. 'The path to 3.5% of GDP on defence spending by 2035 carries an estimated £36 billion a year price tag, and Chancellor John Healey already faces a near £5 billion defence funding gap before a single new promise is paid for. 'Ending rough sleeping, fixing social care, protecting the NHS. Nobody is arguing with the ambition,' says Nigel Green. 'What’s missing are numbers showing how it all gets paid for.'
The chief executive says the autumn Budget will be the moment that number finally has to appear. 'The autumn Budget is now the most important fiscal event of this Parliament. It’ll show whether this government can be trusted with the nation’s finances or whether Britain is watching a re-run of the Liz Truss ‘mini-Budget’ in 2022.'
He concludes: 'Savvy investors, business owners and families won’t be waiting for the Budget to find out what the numbers already suggest,' says Nigel Green. 'They’ll be exploring options to diversify away from concentrated UK exposure now, while there’s still time to act ahead of the crowd.'