Andy Burnham just showed he doesn’t get money – we’re all going to pay | Personal Finance | Finance

Burnham has inherited a mess from Keir Starmer and former Chancellor Rachel Reeves, with weak growth, record taxes, rising spending and borrowing, and debt of almost £3 trillion. The International Monetary Fund has warned that the UK faces a difficult fiscal outlook as interest rates rise and the population ages, and cannot afford unfunded spending pledges. Unfortunately, that’s exactly what Burnham has been throwing out all week, while floating unfunded tax cuts for good measure.

Burnham made a sensible start by appointing respected former Defence Secretary John Healey as Chancellor in place of Reeves. Markets were terrified he would appoint Ed Miliband instead and trigger a full-blown lurch to the left. But last week’s announcements will have destroyed faith in Burnham’s financial nous, as he opens his mouth without doing his sums first. Before taking power, Burnham talked about increasing the additional rate of tax from 45% to 50%, raising capital gains tax rates in line with income tax, and slapping a 10% supplement on inheritance tax to fund social care costs.

Now he’s in No 10, he’s suddenly talking about tax cuts instead. He said complaints about freezing the £12,570 personal allowance were “the thing I heard the most on the doorsteps” during the Makerfield by-election. He stressed that the issue was “lodged in my mind”. But he was quickly forced to row back on that. Burnham hadn’t done his sums. Ending the freeze could cost billions every year, money he simply doesn’t have. That was his first U-turn, but more are likely to follow.

Burnham is sticking to his pledge to scrap the 5% VAT charge on household electricity bills, said to save households just £45 a year. In practice, it will be half that. This is only a temporary cut, running from October 1 this year to April 1, 2027. Savings are likely to be dwarfed by an anticipated rise in the energy price cap.

Supplier EDF forecasts the average annual bill could rise from today’s £1,663 to £1,865 in January as wholesale prices rise. If correct, the extra £202 cost will wipe out the VAT saving almost 10 times over.

And we don’t know how Burnham will pay for this either. He suggested the £850 million cost would be funded by scrapping the digital ID programme, only for Darren Jones, former chief secretary to PM Keir Starmer, to point out the programme was unfunded.

Helen Miller, director of the Institute for Fiscal Studies, said the savings won’t do much to help low-income households. She said: “A VAT cut is a poor lever since the biggest cash gains will go towards richer households.” She also criticised Burnham for “reallocating savings that have not yet been made”.

And it didn’t stop there. Burnham also said he’d allocate £500 million to reduce the cap on single bus tickets from £3 to £2 until the end of the year. Again, he didn’t say where the money was coming from. Transport Secretary Heidi Alexander was left to publicly admit: “The detail will need to be worked out.”

On Thursday, Labour announced a 20% cut in business rates for pubs, without saying how it would fund the £100 million cost. Burnham wants the glory of breaking good news, without the hard work of making the numbers add up. Before becoming PM, Burnham drew ridicule by claiming that Britain needs “to get beyond this thing of being in hock to the bond markets”. Unfortunately, the only way to avoid being in hock to the bond markets is to avoid borrowing so much money from them.

In the last two financial years, Reeves has borrowed £152 billion and £132 billion. In the first three months of this year, we’ve already borrowed £57.6 billion. That’s despite HMRC generating record tax receipts, due to her two punitive Budgets. This isn’t sustainable. If Burnham doesn’t educate himself on finance, and fast, the nation could find itself in even deeper hock, and in short order.