Burnham Warned on Funding Pledges

Andy Burnham has been advised that funding new policy initiatives will necessitate either an increase in taxes or a reduction in public spending. This warning comes from economists at the National Institute for Economic and Social Research (NIESR), who expressed concerns about the government's ability to borrow additional funds.

Economic Outlook and Borrowing Constraints

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NIESR's analysis indicates that the government has reached its borrowing capacity, meaning any new spending commitments must be financed through tax increases or savings elsewhere. The think tank also forecasts a significant slowdown in economic growth, with a projected drop to 0.1 per cent in the third quarter. Inflation is expected to rise to 3.8 per cent next year, potentially prompting further interest rate hikes by the Bank of England in its effort to reach the 2 per cent target.

The economic situation presents a challenging inheritance for the new chancellor, John Healey. NIESR projects a real spending squeeze of 4 per cent by the end of the decade, amounting to approximately £24 billion in today's prices. This squeeze is attributed to persistent inflation and will likely lead to difficult decisions regarding public expenditure in the upcoming budget. The government also faces existing shortfalls in defence spending and needs to allocate funds for social care reforms and efforts to end rough sleeping.

Youth Unemployment and Living Standards

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In addition to broader economic concerns, NIESR highlighted the ongoing issue of youth unemployment. The institute projects that over one million individuals aged 16 to 24 will continue to be not in education, employment, or training (NEET) through to 2030. NIESR suggests that targeted local interventions in mental health and vocational education, rather than solely relying on economic recovery, are required to address this persistent challenge.

Living standards are also expected to remain under pressure. While personal disposable income is forecast to grow by 1 per cent in 2026, this is projected to fall to just 0.1 per cent in 2027 as the impact of higher inflation, driven by increased energy costs, takes hold. The think tank's outlook suggests that despite some resilience in the first half of the year, a marked deceleration in the economy is anticipated for the latter part of 2026.