Andy Burnham, the Prime Minister of England, has pointed to the challenges facing the country's economic growth and emphasizes that his promises to "regulate" the triple lock on pensions are not enough to alleviate pressure on public finances and restore the government's limited financial space.
Financial Challenges and Economic Growth
Diane Turner, an economist at UBS, noted that markets are examining whether the government's growth targets are achievable without increasing pressure on the current difficult financial situation. She added that Burnham, as the first leader in a long time, has shown a desire to address costs.
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Burnham has also committed to maintaining government financial regulations and has indicated the possibility of tax increases. Turner expects the Chancellor to utilize part of the existing financial space and, instead of immediately rebuilding it through tax increases, to use it during tough times. She emphasized that financial reserves are designed for difficult periods, and energy markets remain unstable.
Consequences of Higher Taxes for Investment
Turner warned that tax increases could negatively impact investment and the long-term growth outlook for England. Additionally, Burnham's proposal for greater control over public services could reduce private investment, and regulatory uncertainties may hinder the attraction of domestic and foreign capital. This could place the burden of investment on the public sector, which is already under pressure.
Research indicates that Brexit may have reduced England's GDP by about 6 to 8 percent over the past decade, although Turner emphasized that the economic cost of the 2016 referendum is difficult to measure. According to her, reducing trade barriers with the European Union could help the English economy, but it will not be sufficient to solve larger growth issues.
Turner pointed out that Burnham has repeatedly postponed fundamental reforms until after the next election, and these reforms will not be possible before 2030 or without sufficient parliamentary support for the government.
Currently, financial credibility is considered one of the key levers of the government. A budget that convinces investors that the government is serious about its financial regulations could make the recent increase in bond yields appear more attractive than concerning.
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