{"id":57288,"title":"Economists warn Burnham needs tax rises for major cost of living aid","publisher":"Stockmark.IT","author":"Stockmark.IT Website","published":"2026-08-22T07:40:04+00:00","modified":"2026-08-22T07:40:04+00:00","canonical_url":"https://stockmark.it/burnham-predicted-to-raise-taxes-for-fundamental-cost-of-living-suppor/","markdown_url":"https://stockmark.it/burnham-predicted-to-raise-taxes-for-fundamental-cost-of-living-suppor.md","json_url":"https://stockmark.it/burnham-predicted-to-raise-taxes-for-fundamental-cost-of-living-suppor.json","category":"UK Economy","categories":["UK Economy","UK Government","UK Tax"],"featured_image":"https://i0.wp.com/stockmark.it/wp-content/uploads/2026/08/economists-warn-burnham-needs-tax-rises-for-major-cost-of.png?fit=1536%2C1024&quality=80&ssl=1","format":"news","language":"en-GB","content":"Andy Burnham faces significant constraints in delivering substantial cost of living support without increasing taxation, according to warnings from economists. These concerns follow a recent spike in government bond yields and higher than expected borrowing figures for July. The deteriorating state of public finances has narrowed the range of additional measures available to the Prime Minister to assist households. Several analysts told City AM that the combination of rising gilt yields and the need to mitigate the impact of the energy price shock means Chancellor John Healey may be unable to announce new spending packages without either resetting existing budgets or raising taxes.\n\nThe ten-year gilt yield, which serves as the benchmark for government borrowing costs, reached a peak of over 5.1 per cent on Tuesday before easing slightly. This movement coincided with growing concerns that the conflict in Iran could persist. The Bank of England has indicated it may raise interest rates to counter inflationary pressures caused by trade disruptions in the Gulf region. Such a move would further increase the government’s debt interest load, which currently stands at £110bn. Matt Swannell of ITEM Club noted that current market pricing on bonds would eliminate approximately £7bn of the £23.6bn fiscal headroom available under existing rules. While this would not force immediate fiscal tightening, it would limit the Chancellor’s ability to manoeuvre.\n\nSwannell suggested the government would likely continue its current strategy of prioritising low-cost interventions, such as the cap on bus fares and the planned suspension of VAT on electricity bills. He stated that any measures more fundamental than these would necessitate other spending cuts or tax increases. Researchers at the Resolution Foundation, a left-leaning think tank, estimated that the total fiscal headroom could be even lower than £8bn, as the effects of the Iran war may still weigh on output growth. Recent borrowing data has risen more sharply than anticipated, contrasting with inflation and growth statistics that have performed better than forecasts.\n\nThis situation places Chancellor Healey in a difficult position ahead of the Budget. The government is under pressure to increase defence spending to three per cent of GDP while simultaneously providing support to families facing financial hardship. Analysis from Capital Economics suggests there is little scope to raise borrowing in the upcoming Budget, with a maximum of about £15bn potentially acceptable, though tax rises are likely. Ruth Gregory, deputy chief UK economist at the firm, noted that markets might be more tolerant of extra borrowing if it is used for cost-effective investment. However, she warned that interfering with current fiscal rules could restore market sensitivity. Ashley Webb, a senior economist, added that the UK is on track to record a deficit above four per cent of GDP for the seventh consecutive year, largely due to welfare payments running about £2bn higher than the previous year."}