Burnham’s tax comments alarm investors

Andy Burnham’s comment on Friday that there is “room” for tax changes will alarm investors already worried about Britain’s fiscal trajectory, warns the CEO of one of the world’s largest independent financial advisory and asset management organizations.

 
Nigel Green of deVere Group says: “The likely new prime minister’s assertion today that there is scope for movement on tax within Labour’s existing fiscal framework is sending an immediate signal to global investors that Britain’s economic direction could be becoming less predictable at precisely the moment markets have become least tolerant of fiscal ambiguity.

“His comments will not be interpreted by financial markets as a narrow discussion about business rates or high street support measures.

“They’ll hear a prime minister-in-waiting signalling that there is room to revisit the economic settlement that markets have spent the past two years trying to understand and price.”

Burnham stressed that he remains committed to Labour’s pledges not to raise VAT, income tax or national insurance, while arguing there is flexibility elsewhere in the tax system and defending his credentials on fiscal discipline.

But Nigel Green warns that global capital markets have become highly sensitive to any suggestion that Britain’s already fragile fiscal position could become more uncertain.

“The era of governments assuming that markets will patiently wait for explanations is over.”

“The UK learned that lesson brutally. Think the Liz Truss ‘mini budget’. Investors now react first and ask questions later when fiscal credibility appears to be drifting.”

Britain’s government borrowing costs remain close to levels that, until recently, would have been considered extraordinary. Ten-year gilt yields have traded above 5% this year, while 30-year borrowing costs surged to their highest levels since 1998 amid political and fiscal concerns.

“Britain is already paying a political risk premium,” explains the chief executive of deVere Group.

“The danger is that markets conclude the comments are not about tactical tax changes, but about a broader shift toward a more interventionist, higher-spending, higher-tax economic model.”

He argues that investors are especially alert because the incoming government faces immediate spending pressures, including a multibillion-pound defence funding gap and mounting demands for higher public expenditure across multiple sectors.

“The arithmetic facing the next prime minister is already extremely challenging.

“If markets begin to suspect that the answer to those challenges is more borrowing, more taxation and more state intervention, confidence could deteriorate very quickly.”

Nigel Green says investor concerns would intensify sharply if Andy Burnham appoints Ed Miliband as Chancellor.

“A Miliband Treasury would trigger immediate alarm in investment committees around the world.

“Whether supporters consider that assessment fair is beside the point. Markets operate on perception, and the perception among many international investors is that Ed Miliband represents a more interventionist, less market-oriented approach to economic management.”

He adds that investors would immediately begin reassessing their exposure to British assets.

“It would become a debate about sterling, gilt markets, inward investment, business confidence and Britain’s long-term competitiveness.”

Nigel Green concludes: “Markets will not give the new prime minister a honeymoon period.”

“They will make a judgment within days about whether Britain remains committed to fiscal discipline and economic pragmatism.

“And if investors conclude that political ambition is beginning to take precedence over fiscal reality, the repricing of UK risk assets could be swift, severe and extraordinarily difficult to reverse.”