Why Burnham's borrowing bonanza won't work

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0:37Hello, welcome to Coffeehouse Shots. I'm James Heal and I'm joined today by Michael Simmons and Isabel Hardman. Now, first up, Michael, there's a story that splashes The Times, which you had a few months ago. Tell us about it. Yep. So the front page of The Times today is about the Treasury's plan to kickstart the economy with a£9 billion a year borrowing bonanza. and this is what we've been hearing about for a while about how they reckon and those advising Andy Burnham people like Jim O 'Neill reckon that there's a way you can borrow more without breaking the fiscal rules but readers of The Spectator will already know about this because back in June I wrote a column about Burnham's potential first budget and the ideas that were being discussed and this I revealed at the time was one of the ideas and it's exploiting a change to the fiscal rules that Rachel Reeves made, which is that if you're borrowing to invest in something that also gives you an asset, then your sort of total debt figure within the rules wouldn't actually go up because the argument is that you've taken on a liability, the debt, but you've also got an asset.

1:48The way, the kind of vehicle that that is done and what is going to become the acronym, I think, of this coming budget is PUFINS, which is Public Financial Institutions. So that's things like the British Business Bank, the National Wealth Fund, UK Export Finance, things like that. And these are bodies that are able to take on debt for loans to help British business. But crucially, if they do it in a way that takes on an asset, in theory, you stay within the rules. And it seems that that is the plan that the Treasury is certainly flying anyway as an idea for the budget. However, I'm not sure this is going to work and I've been speaking to some kind of ex-treasury officials who also don't think this is going to work for two main reasons.

2:32Firstly, given that this was Rachel Reeves's invention anyway, if it worked, why didn't she do more of it? I think if you look at the last spending review under this kind of borrowing wheeze, she planned something like just over nine billion extra in borrowing over the next few years already, if you were able to do it in a way that was transformative to the economy, that would give you the billions that you needed to, let's say, take over Thames Water, surely she would have done that. And nobody on the Burnham side seems to have an answer for why she didn't. I think the answer to why she didn't is because the trouble is, well, two problems.

3:09Firstly, it's not you that decides this is an asset and this is a liability. It's the OBR and the ONS. So, you know, you could make these plans, make these investments, and then find that the bean counters say, oh, actually, no, that particular investment is a worthless asset, so you've just massively increased your debt. But even if you overcome that problem, you still have to go to the gilt market for the initial investment. And right now, yields are at highs that they've been for decades, so you're still going to have to take on additional borrowing at massive cost, even if you stay within the rules.

3:45So for that reason, I'm not sure this is the silver bullet that those in Burnham's ear maybe think it is. Isabel, obviously the fiscal restraints facing John Healy are much the same as they were facing Rachel Reeves. How do you think that he will differ in his approach to the Treasury, to borrowing? What do we know of his politics thus far? Because he was, of course, a long serving junior minister under Gordon Brown. Yeah, I think Michael's point about this not being the silver bullet is really important because there is no silver bullet. And it means, as you say, James, that Burnham and Healy are having to operate within the same rules, the same constraints as Rachel Reeves and Keir Starmer.

4:28They framed things differently, but that's really the only major difference is the framing, the way in which they introduced these things. that the first couple of weeks have been much more upbeat from Burnham than they were from Starmer and Reeves. In terms of the idea that these are kind of investments that are going to pay for themselves in the long run, that's one of those, it's not even a silver bullet, that's one of those sort of mythical creatures that exist in politics. I'm thinking of the Millennium Dome, but maybe white elephant is the wrong thing, Isabel. White elephant, I mean, it makes unicorns seem like a realistic, prospect.

5:08It's one of those things that you hear so much of. I remember I just had a flashback to Nick Clegg in 2010 talking about tax increment financing and how this in the long term was going to pay for itself. And the number of press releases that all three of us get from, you know, pressure groups saying we've got this great idea that it's going to save the Treasury 82 ,000 billion hundred million squillion pounds in 50 years time but they're going to have to spend even more right now you know it's that sort of if we spend now we're going to save money later doesn't work that way just never works that way but also you know we're talking here specifically I think about infrastructure housing projects things that Burnham really likes to talk about he's actually made announcements on on other things um that he hasn't discussed how he's going to pay for either that would have to be funded in in a different way and all of this i think really points to the reality that the autumn is going to be difficult um no burnham and healy aren't doing what reeves and starmer did uh which is to talk about how difficult it's going to be non-stop and i think that's you know in terms of um not making people depressed in the middle of the summer is probably the right thing to do um but when it comes to the budget uh the end of October, there's going to have to be difficult choices.

6:30And the nice cost of living announcements that have been made thus far are going to have to be funded. And that means that somebody else isn't going to get something. And I think we've seen, you know, we've seen this week, people saying that the prisoner early release scheme, that the tweaks that Burnham has been able to make to it, which, you know, are limited. And he had a very frustrated post yesterday saying he got to the limits of what he could do in terms of stopping certain prisoners from being released, still got cop killers and domestic abusers being able to walk free in the next wave.

7:06People were saying, well, this is his first taste of unpopularity. I don't think that's true, because I think that is something that he can pin quite squarely on the Tories and actually to a certain extent to Keir Starmer, because he's saying, well, I'm announcing something slightly different. when it comes to the autumn he's not going to be able to do that he's not going to be able to really say i found the silver bullet slash white elephant slash puffin whatever creature i mean puffins aren't mythical creatures but whatever mythical creature we want to find i found it everything's okay now he's still going to have to announce things that people don't like or not announce things that people wanted and that's going to be his first taste of unpopularity this week has just been a mild frustration the autumn is when the excrement hits the fan yeah i think the other thing that this announcement or this story probably means that we're gonna have to watch out for and as we go into next year is i think this means the fiscal rules no matter how ironclad they are do actually get changed now they won't be changed in this first budget because you know they've made this commitment about not spooking the markets but you know andy haldane and jim o 'neill the two people kind of pushing this to burnham really really hate one particular aspect of the fiscal rules and that's this idea that you have to actually be meeting the rules three years into the five-year obr forecast window and that sounds silly but it's really important because what used to happen when there was this five-year um window was you would just pencil in all these tax cuts or sorry all these tax increases and spending cuts that would make everything balance um and that five years was was fictional it would never happen and you know the next chance would come along or the next year you just make sure that in five years again it was all going to be um fine but the fiscal framework was tightened up by the government meaning that in the third year of that forecast you had to be hitting the rules and i think that is the bit that we will see getting properly loosened up eventually they'll try this puff and wheeze it probably won't work and then And maybe if the economy is in a bit of a calmer state in the next year or sort of the last year of the Parliament, they'll see, oh, that three years is suddenly five again.

9:21And elsewhere, the man who missed out on that job of Chancellor, Ed Miliband, has got the consolation prize of another great office of state, the Foreign Office. He's in America currently, Isabel, and going to be meeting with his American counterpart, discussing various UK cooperation in a whole range of areas. I mean, what do we expect them to be talking about? And how do we think citizen Ed Miliband will get on in the United States? Well, he's already met Marco Rubio before and apparently got on really well with him. And I think this is a sort of, you know, partly trying to continue the good relationship that has existed between foreign secretaries and Rubio.

10:03Yvette Cooper got on well with him as well. And, you know, it's not it's not the sort of unpredictability of a meeting with Trump. It's more kind of like two normal government people meeting each other. They'll obviously be talking about Iran. They'll be talking about Ukraine. They'll be talking about Gaza. And I think in terms of Ukraine, there's always the question of the level of support and attention that the US actually wants to give that conflict, which is not in question when it comes to Iran. And once again, it's the, you know, it's the difference between what the lower level ministerial positions, if I can call a foreign secretary that agrees that sounds sensible.

10:50And then what Trump then just puts on truth social two hours later and whether the two have any bearing on one another or not, which tends to be not. And Isabel, I mean, you obviously covered Ed Miliband for a number of years. He was elected MP in 2005, was someone who did international diplomacy with the Copenhagen Summit as energy secretary, became Labour leader, distinguished himself or perhaps, I don't know, demonised himself by sort of taking a line on Iraq and then Syria airstrikes in 2013 and then had a whole other life since then. I mean, how do you think, if at all, a Miliband will change foreign policy that we previously had with David Lammy and Yvette Cooper?

11:30I think when it comes to Trump, I think it's always worth saying that whatever somebody has said about Trump before is quite easily forgiven, actually, which is why David Lammy actually, you know, managed to make a reasonably decent fist at the role. Miliband as Labour leader was a disaster. Miliband as a minister, actually, he's a hugely effective operator. you know he's got a huge amount of experience he knows how to get his way he's charming and hard-working those things make him very potent indeed I think our colleague Ross Clark is slightly mourning his loss from the energy role um because he can't write two blogs a day on him anymore but the reason we had basically an Ed Miliband correspondent at The Spectator was that Ed Miliband gets things done unlike a lot of people in modern government he doesn't actually just announced stuff and think he's achieved it he actually then gets on with implementing it as well and often that stuff is you know in our eyes deeply wrong but it's better than a lot of his colleagues who just sort of flimflam around with green papers for like 10 years he is an effective minister in terms of how we might change foreign policy i mean my hunch is that we are probably heading for a more skeptical position on israel for instance i don't know why i'm saying it's a hunch we have moved into a more skeptical position on israel that's partly a party management thing from andy burnham trying to write what he sees as the wrongs of keir starmer particularly those comments that starmer made where he was effectively endorsing war crimes um early on where he basically wasn't thinking um in a radio interview But that caused so much upset within the Labour Party with its voters who are Muslims as well, that it was an early thing that Burnham wanted to apologise for.

13:26I think we are going to move into a, I wouldn't say a more hostile position towards Israel, but I don't think that there's going to be quite as much, quite as much of a desire to suggest that Israel gets automatic support of Britain. And, you know, that's something that's worrying to those who are in sort of Labour Friends of Israel group who are saying, well, Israel is still a state that is under constant threat and bombardment and is still surrounded by enemies who want to destroy it. But I think in terms of the pairing of Burnham and Miliband, you can quite easily see how that's not going to be an easy relationship at all, I think is going to cause quite a lot of awkwardness, again, particularly in terms of the UK-US relationship.

14:13Thank you, Isabel. Thank you, Michael, and thank you for listening to Coffee House Shots.

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