Prime Minister Andy Burnham faces pressure to raise taxes or reduce spending if he is to deliver pledges on defence and the cost of living, according to a leading economic think tank.
BBC News reported that Burnham has announced several measures since taking office last week, including reductions in electricity bills and restoring the bus fare cap to £2 across most of England.
The National Institute of Economic and Social Research said public finances were likely to remain under strain, citing more persistent inflation linked to the Iran war. It questioned whether the funding of Burnham’s commitments had been fully considered.
Stephen Millard, Niesr’s deputy director for macroeconomics, said there was “clearly no scope for increasing borrowing” and that the issue would come down to choices.
Labour’s manifesto included a commitment not to raise taxes on working people, including income tax, VAT and national insurance contributions. Burnham has said he will maintain that pledge.
Millard said Niesr favoured funding cost-of-living support through higher taxes, potentially involving tax reform rather than higher marginal rates, or through spending reductions. He cited the welfare bill, the pensions triple lock, council tax reform towards a land value tax model, and removing some VAT exemptions as possible areas for consideration.
Niesr also said it expects inflation to continue rising until February 2027, reaching 3.8% before returning to the Bank of England’s 2% target. The think tank said it did not expect the Bank to cut interest rates until 2028.
David Aikman, Niesr’s director, said “treading water is not enough” to stop national debt rising, adding that major shocks this century had pushed the debt ratio higher without those increases being reversed.
The Treasury said the government would continue to follow its fiscal rules while investing in public services. A spokesperson said fiscal discipline underpinned economic stability and national security.
