Burnham’s funding gap: what state are UK finances in for the PM-in-waiting?

How much leeway Andy Burnham’s has will depend partly on the Bank of England and whether he can avoid provoking a negative bond market reaction. Photograph: Temilade Adelaja/Reuters View image in fullscreen How much leeway Andy Burnham’s has will depend partly on the Bank of England and whether he can avoid provoking a negative bond market reaction. Photograph: Temilade Adelaja/Reuters Analysis Burnham’s funding gap: what state are UK finances in for the PM-in-waiting? Richard Partington Senior economics correspondent Given pressures on the public purse, the Makerfield MP may have to look at autumn tax rises to fund his ‘new direction’ An economy rattled by a global energy shock, jittery bond markets and rising spending demands. As Andy Burnham prepares for government, the pressures on the public finances are in focus. The prospective prime minister pledged a new direction for Britain this week within two constraints: sticking to Labour’s current fiscal rules, and consistency with its 2024 manifesto. Even before his expected arrival in Downing Street, Burnham will have a tough starting position. In committing to the fiscal rules drawn up by Rachel Reeves , the most recent reference point for how much wiggle room Burnham could have as prime minister was spelled out in the chancellor’s spring statement in March. Reeves left herself £23.6bn of “headroom” against the primary requirement of her fiscal rules to balance day-to-day spending with receipts within five years’ time. Since then, however, the impact of the Iran war on the UK economy, rising government borrowing costs and Keir Starmer’s defence investment plan are likely to have eaten into some of that buffer. As he prepares to leave office, the outgoing prime minister announced £15bn in additional defence spending over four years this week, but did not give full details on how it would be funded . According to the Treasury, £10.3bn will be raised by “reallocating budget” from across government departments. Many of the decisions on how these budgets would change have yet to be made, however, leaving the new prime minister a headache. Another £4.7bn will also need to be found in the autumn budget, a shortfall of about £1.2bn a year. Still, the extra spending could be covered without blowing the fiscal rules. Judging this will be down to the Office for Budget Responsibility (OBR), which will need to take into account a wide range of headwinds and tailwinds for the public finances far beyond the extra costs from Starmer’s defence investment plan. skip past newsletter promotion after newsletter promotion ‘Commanding heights of the economy’: the postwar blueprint that inspires Burnham Read more Foremost is the impact from the Iran war, which has driven up inflation and is weighing on economic growth. In a reflection of this economic shift – and as the Bank of England keeps interest rates on hold – the government’s borrowing costs have increased, adding to the bill for servicing Britain’s £2.9tn nati