BURNHAM TOLD TO RAISE TAXES OR CUT SPENDING TO FUND PLEDGES

Prime Minister Andy Burnham must raise taxes or cut spending to meet his pledges on defence and the cost of living, the National Institute of Economic and Social Research warned on Wednesday. The think tank said public finances will face a £24 billion real-terms spending squeeze by the end of the decade as inflation persists longer than previously forecast. Burnham has announced measures since taking office last week, including cuts to electricity bills and reducing bus fares to £2 in most parts of England. The Treasury said the government will stick to its fiscal rules whilst investing in public services.

Niesr forecasts inflation will peak at 3.8 per cent in February 2027 and remain above the Bank of England's 2 per cent target until 2029, driven partly by the Iran war. Stephen Millard, Niesr's deputy director for macroeconomics, said the think tank advocates funding cost-of-living measures through tax reform or spending cuts. Millard identified potential areas including welfare spending, the triple lock on pensions, council tax reform towards a land value tax system, and scrapping some VAT exemptions. He added that if these measures prove insufficient, breaking Labour's manifesto pledge on income tax may become necessary.

Niesr's Director David Aikman stated that "treading water is not enough" to prevent national debt from rising. The think tank does not expect the Bank of England to cut interest rates until 2028. Burnham has pledged to uphold Labour's manifesto commitment not to increase taxes on working people, including income tax, VAT and national insurance contributions. The government faces "very difficult trade-offs" in the autumn Budget, according to Niesr's assessment.