Former Bank of England chief economist Andy Haldane has warned Prime Minister Andy Burnham that Britain must reduce public spending to calm volatile bond markets.
Speaking to broadcaster CNBC, Mr Haldane warned that the UK is "skating on thin ice" in fiscal terms as the government struggles to balance its books ahead of this month's Budget. He urged the Prime Minister to "take the knife" to ballooning public expenditure, cautioning that further tax hikes would be "disastrous" and risk "cratering growth".
The warning follows recent turbulence in financial markets that pushed the cost of government borrowing to a 28-year high. The sharp rise in borrowing costs has dramatically reduced the Treasury's financial headroom as ministers finalize their fiscal plans.
Bond market pressure and inflation
UK government bonds, known as gilts, have come under heavy pressure in recent weeks. Traders have reacted to global inflation triggered by the Iran war alongside persistent uncertainty over how Mr Burnham intends to manage Britain's debt pile. Gilts are sovereign debt instruments issued by HM Treasury to finance state expenditure, and higher yields directly increase the cost of government borrowing.
Mr Haldane stressed that decisive action on expenditure is required to restore market confidence. "We are skating on pretty thin ice in fiscal terms, and nothing would be worse both economically and politically, than if the ice were to crack beneath our feet," he told CNBC.
He added that the "single most effective way" to reassure financial markets "is for this government to show that it's able and willing to take the knife to public spending."
Concerns over economic expertise
Mr Haldane expressed concern that the administration lacks sufficient technical depth, arguing that the government is "significantly underweight" in economic and financial expertise.
"That is the Achilles' heel of this government," Mr Haldane said. "Unless and until action is taken on that, Andy will remain, alas, in hock, to use an expression, to the bond market."
The phrasing echoed a comment made by Mr Burnham last year prior to taking office, when he stated that he did not want Britain to be "in hock" to bond markets. That remark created anxiety among market participants. Traders were partially reassured when the then-Labour challenger appointed Mr Haldane and Jim O'Neill, a former chief economist at Goldman Sachs, as informal advisors. However, neither economist has since assumed a formal role within the government.
Tax policy and investment risks
Mr Haldane, who now serves as president of the British Chambers of Commerce, noted that he prefers to remain "slightly outside the tent and advising from an arm's length." The British Chambers of Commerce is a national business network representing thousands of companies across the United Kingdom.
Addressing speculation regarding potential tax increases on banks, wealth creators, or the North Sea oil and gas sector, Mr Haldane warned against such measures. "I think that would be a disastrous thing to do in this environment," he said, noting that investor confidence remains "febrile" and "fragile."
He warned that additional tax burdens would send a negative signal to prospective investors. "The signal that would send about the ease and attraction of doing business in Britain would risk cratering that confidence, and therefore cratering growth," Mr Haldane said. "We can't live in a country, where the investor's perception is that the taxman takes the upside, and the investor takes the downside? Rightly, that would be a repellent to money, a repellent to business, a repellent to people and their skills and their entrepreneurship."
Criticism of economic direction
The economist has grown increasingly vocal about the administration's trajectory. Last month, Mr Haldane stated that financial markets suspected the Prime Minister of leading a "traditional tax and spend socialist government with better TikTok videos."
His comments come amid broader concerns regarding capital flight from the UK economy. Recent figures show that billionaires holding assets valued at £120 billion have left Britain since Labour took office, driven by concerns over higher taxation.
