Why your taxes will go up to pay for Burnham's plans

As PM Andy Burnham's spending commitment's mount, City AM's Editor in Chief Christian May tots up the damage.

From bus fare caps to housing the homeless, Burnham's spending bill already comes to £22bn. 

Welcome to the Week in Business. 

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Transcript

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Well, I've been on holiday, but now I'm back. So what have I missed? Well, we left under one Prime Minister. We've returned under another. That's just how it is in the UK these days. I did watch Andy Burnham's Downing Street speech. I watched it on my phone at the Calais side of the Euro Tunnel. I think I was the only person doing that among the crowd. And uh well, I had a few thoughts on it. So this is the week in business, back after my French holiday. And uh where to begin? Well, Burnham's been busy. He's been a very busy boy. Uh day four, this is, of his new administration, and uh every morning at 6 a.m. there's been a press release announcing some new policy. Um, and we've had a bit of a flurry of them. He's declared that this will be a cost of living government, and uh he's determined to help people out. A little bit of breathing space is the way he put it. Uh so he's announced all sorts of policies. Some of them have um a little bit of a price tag, some of them are going to need him to find the money from elsewhere, some of them have got some question marks over them. Um we took a quick look at the cumulative uh bill for Burnham's uh initial set of priorities. Um it comes in at a at a neat £22 billion. That's a black hole, by the way, £22 billion of uh as yet unfunded spending commitments. And that includes uh the defence investment plan, which he's committed to, um, picking up the tab for Starmer settling the NHS strikes, his emergency energy uh VAT cuts, debt interest, we know over the course of the rest of this parliament, his ambition to end rough sleeping, um, further increases in defence spending, all comes in about 22 billion. If you add the uh other things he says he wants to do, um, like change our international development spending, bringing it back up to 0.7% of GDP and other such things, you're gonna get north of 60 billion quid pretty quickly. Why does all that matter? Because, um, as we put on our front page earlier this week, it means that according to a number of economists, and it's I have to say something of a consensus as things stand, tax rises are inevitable. You're not gonna be able to do half of what it is he says he wants to do uh based on the 990 odd billion pounds that we all paid into the Treasury in the last uh 12 months. He's gonna need some more. Uh his pick for Chancellor John Healy is in an interesting one. John Healy's not a radical left-wing headbanger, um, and he there's some sense of reassurance in that appointment. But plenty of people around Andy Burnham in other key departments and in his advisory and policy team in number 10 um are pretty punchy and pretty comfortably of the left and on some occasions the far left of the Labour Party. So, what are their instincts going to be? So far, some of the policy announcements we've heard have been focused around reprioritising money. So the two pound bus fare cap will be funded, we're told, by uh taking money away from some of the grants that were going to be um flung out of the window of the department for net zero. That's a few hundred million quid. Reprioritization is what John Healy calls it. Um some of the money has got a question mark on it, as I said. Um, and some of it's gonna come uh, well, we have to wait until the budget in the autumn to find out the exact details. And what we've had in the last few days is is pretty small fry stuff. 45 quid off the average household energy bill, a two-pound bus cap, helpful to many I know, but not exactly a great revolution. And a thousand pounds a year off business rate costs for pubs, which comes, of course, after many thousands of pounds worth of tax rises on them and increases in their labour costs. But you know, he's he's he's he's kind of vibe-based, albeit quite expensive vibes. The budget will be the big test. And what's going to happen there? Significant reductions in departmental spending or and capital spending, um, significant cuts to public spending in what we used to call austerity. I would be surprised. He's got no appetite, it would seem, to take the welfare bill down in anything like a dramatic fashion. Um more borrowing, he says, as has John Healy told us this week, absolutely committed to the fiscal rules and the credibility that they bring, leaves tax rises. And where's that gonna fall? Well, plenty of people around him are calling for more um sector levies, more increased taxation on the banks, various forms of wealth taxes. Um I I think this smart money is on some uh tax rises in the budget. I just want to park some of the um uh tax speculation for now because there'll be plenty of it to come. And look at another area which Burnham says is he wants it to be the defining part of his uh projects in government, and that's this radical devolution agenda. Now I've said before that I think the benefits of devolution are wildly overstated. We've run this experiment for decades in Scotland and Wales, and many things have got much worse in those countries uh since devolution, and by all means write to me and tell me what's got better. But on the uh devolution across English local authorities, I find this really interesting. Given the kind of uh catastrophic incompetence at the heart of the state in its centralized form, are we gonna say that we will fix that by um pushing these powers out into the regions where they will inevitably therefore become more efficient and more competent? I mean, that's a bit of a gamble, or are we just gonna export the same level of kind of crass state incompetence and ineptitude that dogs Whitehall as it currently stands? Well, a fascinating report. I've got it here from Oxford Economics, which um landed in my inbox yesterday. It's very interesting. Contextually, it does make the case for more devolution, it does point out how centralized the UK economy is and and governance. Um, but it has some concerns. Um I thought I'd just share a couple with you. I mean, first of all, they look at the international evidence for this and say that um decentralization of powers in and of itself can improve national growth. Well, there isn't much evidence for it. It specifically says that the international evidence for that claim is pretty mixed. Um, in other words, if Burnham's going to do this, it'd have to do it better than anyone elsewhere has ever done it. They're clear that devolution alone will not materially affect growth in the short to medium term. And what they're talking about is there is a radical way in which devolution could be done, but they don't believe that this government or any government will do it to such a radical extent because, and as they spell it out quite clearly here, the Treasury simply won't allow it. And furthermore, they say that if you're going to be really radical and allow different regions and cities to raise taxes and to borrow, etc., you're going to end up in a situation where there will be massive regional inequalities because some places where they already have uh you know quite densely established economies will do well, and other areas will do less well, and they don't expect that this government, or indeed any government,'s got the appetite to oversee that. So they don't expect any discernible economic growth uplift from uh what they describe as a modest approach to uh fiscal devolution. Simply redistributing the existing spending pool across regions, which is what they expect to happen, will not raise growth. In fact, it may reduce it. As investment multipliers tend to be higher in already dense economies like London, shifting investment away to less dense cities and towns would result in lower aggregate return on the same level of investment. People are going to start spending a lot more time looking at what devolution means. And of course, to give him the benefit of the doubt, we need to hear it from Andy Burnham himself as to what he means. But um, unless he's going to go fantastically radical and put up with uh some pretty stark winners and losers across the country, he's probably just gonna be trying to push more money, more of the same pot out across different parts of the country and expect uh growth to magically appear. I wish him well. Um, we'll hear much more about that um when politics gets back to normal. Of course, they're all on holiday at the moment. Um, and uh we'll hear a lot more about the economics of all this uh in the run up to the budget, um which I expect will be quite a tense time um here in the city. Uh anyway, I've brought myself back up to speed having returned from holiday. I hope you're now up to speed. I'll see you next week.