Former Bank of England chief economist says Tory growth policies ‘far more likely to succeed’ than Labour’s – UK politics live

Andy Haldane is a former chief economist at the Bank of England. He is presented as an independent thinker, with a strong interest in regional growth. Michael Gove hired him as a levelling-up adviser, and Haldane informally advised Andy Burnham during the summer.

Despite that connection, Haldane now argues that the Conservatives’ economic approach is more likely to succeed. He favours lower business and employment taxes, less regulation and reduced government spending. He believes these measures could encourage private economic activity and lower borrowing costs.

His argument depends on changed conditions. He says long-term borrowing costs are now 4–5 percentage points higher and exceed expected nominal growth. Labour’s plans for a larger state therefore risk worsening debt pressures. Haldane also says Conservatives were wrong to impose austerity when borrowing was unusually cheap and public investment was affordable.

The central difference is the role of government in driving growth. The Conservatives’ approach described here is smaller government, lower taxes and less regulation. It aims to give businesses and employers more incentive to invest, hire and expand. Labour’s approach involves a larger state and greater public spending.

Haldane’s concern is not simply ideological. He argues that the state currently has limited financial capacity and that public-sector productivity has failed to rise this century. A bigger public sector may therefore add costs without delivering enough extra economic output. In his view, spending could crowd out private growth rather than support it.

The debate has become sharper because borrowing costs have risen. Haldane says the Conservatives’ proposed spending reductions could lower those costs, while Labour’s expansion risks unsettling bond markets. He contrasts this with the 2024 election, when the parties’ economic manifestos were separated by very little.

Haldane identifies two important figures in his argument. First, long-term government borrowing costs have risen by 4–5 percentage points. They now sit above estimates of the UK economy’s long-term nominal growth rate. That makes existing debt harder to stabilise and limits room for new spending.

Second, he says austerity opened a £2tn investment gap relative to international competitors. He links this gap to cuts in funding after George Osborne’s policies were introduced. In his view, those cuts reduced the investment needed to support stronger long-term growth.

The timing is central. During austerity, government debt was smaller and borrowing costs were lower than today. Haldane says inflation-adjusted long-term borrowing costs were negative for extended periods. He therefore believes public investment should have increased then, whereas current conditions make spending restraint more urgent.

A primary fiscal surplus occurs when government revenues exceed spending before interest payments on existing debt are included. It does not mean the government has eliminated its debt. It means current public services and other spending are covered by current income, leaving a surplus to help manage debt interest.

Haldane says long-term borrowing costs have risen 4–5 percentage points. They now exceed estimates of the UK economy’s long-term nominal growth rate. When debt costs grow faster than the economy and government revenues, debt can become harder to stabilise without stronger budget balances.

That is why he argues for sustained primary surpluses. The government would need to control spending, raise sufficient revenue or do both. Haldane links this need to the current fiscal environment, not to every period in British history. He says austerity was poorly timed when borrowing was exceptionally cheap.

If government expands spending without enough fiscal capacity, it may need to borrow more. Haldane says this is risky because public-sector productivity has not risen this century, while borrowing costs are already high. Extra spending may therefore produce limited economic benefit while increasing pressure on the public finances.

The key mechanism is crowding out. A larger financing requirement can compete with private investment and make investors question whether government debt is sustainable. Haldane also warns that a loss of confidence in bond markets could cause borrowing costs to ratchet higher. He compares that possible danger with a “Liz Truss-plus” scenario.

Higher borrowing costs would make debt interest more expensive and could force further spending restraint later. Haldane therefore supports reducing government spending, alongside cuts to business and employment taxes and regulation. His aim is to lower borrowing costs and encourage private-sector growth.

Haldane distinguishes between the economic conditions during austerity and those facing Britain today. When George Osborne’s austerity policies were introduced, government debt was much smaller. Long-term borrowing costs were also lower than at any time in human history, and inflation-adjusted rates were negative for extended periods.

Those conditions made public investment unusually affordable. Haldane says there may never have been a better opportunity to invest, yet funding was cut. He argues that the result was a £2tn investment gap compared with international competitors, which stunted growth. His criticism is therefore about timing, not simply the idea of controlling spending.

Today, he says the situation has reversed. Long-term borrowing costs have risen 4–5 percentage points and exceed long-term nominal growth estimates. With debt already more burdensome, Haldane believes reducing spending now could help stabilise debt and lower borrowing costs.

Government debt is sustainable when the state can keep servicing it without continually losing investor confidence or requiring damaging emergency measures. Interest rates matter because they determine how expensive existing debt becomes. Economic growth matters because a growing economy usually provides a larger base for government revenues and makes debt easier to manage.

The relationship becomes dangerous when borrowing costs rise above economic growth. Haldane says that is now the UK’s position. The government may then need primary fiscal surpluses, meaning revenue exceeds non-interest spending, to prevent debt dynamics from worsening. Large new spending commitments can add to borrowing and increase doubts about sustainability.

Investor confidence links these forces together. If markets doubt the government’s plans, borrowing costs can rise further, creating a damaging cycle of higher interest payments and weaker finances. Haldane therefore favours spending restraint today, although he says investment should have been increased when debt and borrowing costs were much lower.