Former Bank of England chief economist tells Andy Burnham to ‘take knife’ to public spending to calm bond markets

Britain is ‘skating on thin ice’ as it struggles to balance the books and must ‘take the knife’ to ballooning public spending, a top advisor to Andy Burnham has warned.

Andy Haldane, a former chief economist at the Bank of England, also warned the PM that further tax hikes would be ‘disastrous’ and risk ‘cratering growth’.

The comments come after volatile bond markets recently pushed the cost of government borrowing to a 28-year high, dramatically lowering the UK’s financial ‘headroom’ ahead of this month’s Budget.

UK bonds, known as gilts, are under pressure both because of global inflation caused by the Iran war and uncertainty about how Mr Burnham will tackle Britain’s debt pile.

Mr Haldane told broadcaster CNBC: ‘We are skating on pretty thin ice in fiscal terms, and nothing would be worse both economically and politically, than if the ice were to crack beneath our feet.’

He said the ‘single most effective way’ of stopping that and appeasing financial markets ‘is for this government to show that it’s able and willing to take the knife to public spending’.

Andy Haldane said the government is ‘significantly underweight’ in economic expertise

He added: ‘That is the Achilles’ heel of this government. Unless and until action is taken on that, Andy will remain, alas, in hock, to use an expression, to the bond market.’

The remark echoed a notorious comment from Mr Burnham last year, before he became prime minister, when he said he did not want Britain to be ‘in hock’ to bond markets.

That unsettled traders at the time. They were partially reassured when the then-Labour challenger took on Mr Haldane and Jim O’Neill, a former chief economist at Goldman Sachs, as informal advisors – though neither has since taken up a formal role in government.

Mr Haldane has since been critical of the direction taken by the PM, saying last month that the market now suspected he was leading a ‘traditional tax and spend socialist government with better TikTok videos’.

In his latest interview, Mr Haldane, who is president of the British Chambers of Commerce, said he preferred to be ‘slightly outside the tent and advising from an arm’s length’.

Yet he believes the government is ‘significantly underweight in its economic and financial expertise’.

Asked about the potential that Labour could stage a tax raid on banks or the North Sea, or on wealth creators, Mr Haldane said: ‘I think that would be a disastrous thing to do in this environment.’

He said that confidence remained ‘febrile’ and ‘fragile’ and higher taxes would damage that.

‘The signal that would send about the ease and attraction of doing business in Britain would risk cratering that confidence, and therefore cratering growth.

‘We can’t live in a country, where the investor’s perception is that the taxman takes the upside, and the investor takes the downside?

‘Rightly, that would be a repellent to money, a repellent to business, a repellent to people and their skills and their entrepreneurship.’

The comments come after figures showed billionaires with assets of £120 billion had upped sticks and left high-tax Britain since Labour came to power.