UK leadership contender Burnham faces calls for bolder investment borrowing

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Burnham faces borrowing calls

Highlights

Former Treasury minister O'Neill urges Britain's next leader to consider more investment borrowing, even revisiting current fiscal rules if necessary.
O'Neill suggests that election manifesto pledges can hinder post-election policy flexibility, potentially constraining solutions for structural economic issues.
He recommends the National Infrastructure and Service Transformation Authority boost transparency and feed data to the Office for Budget Responsibility for improved long-term fiscal forecasts.

Fiscal rules debate sharpens ahead of leadership change

As reported by Reuters, O'Neill says Britain's next leader should be more willing to use borrowing for investment, even if that means revisiting current fiscal constraints.

O'Neill, a former Treasury minister who has been advising Burnham, says fiscal credibility cannot be judged by a single framework. He argues that governments have often changed fiscal rules and that treating one simple approach as the only route to credibility is misguided.

He also says election manifestos can become restrictive once parties take office. In his view, commitments made during campaigns can lock governments into positions that stop them from pursuing policies needed to address structural problems.

Burnham has promised radical change while keeping Britain's existing fiscal rules, including the requirement for day-to-day spending to be matched by revenue. O'Neill acknowledges that breaking those rules could unsettle financial markets, but says a credible plan to deal with Britain's long-standing weaknesses would ultimately be received positively.

Infrastructure oversight seen as part of fiscal credibility

O'Neill says the recently created National Infrastructure and Service Transformation Authority should become a more transparent public body that assesses the impact of infrastructure projects.

He says that information could then feed into the calculations of the Office for Budget Responsibility, the UK's independent fiscal watchdog, helping shape its scoring of long-term forecasts. He adds that he hopes a Burnham government would pursue such an approach.

UK governments have imposed borrowing and debt constraints since the 1990s, seeking to limit spending deficits and manage public debt relative to GDP. Asked whether he might join a future Burnham administration, O'Neill says he has not received any formal offers.

Our earlier coverage of the OBR’s long-term debt sustainability warning explained that, on current policies, UK public debt is projected to move onto an unsustainable upward path in most scenarios without corrective action. We noted the watchdog’s view that stabilising debt around 95% of GDP could require tax rises or spending cuts worth about 3.8% of GDP from the early 2030s, with ageing-related pressures—especially health and social care—driving the outlook.

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