Burnham tries to calm bond market fears as sell-off threatens crucial first budget
Andy Burnham sought to reassure jittery bond markets on Wednesday, promising his government's decisions would be "grounded in fiscal responsibility" as a sell-off in UK government debt threatened to derail preparations for his first budget. The intervention followed his statement to parliament a day earlier, in which pledges on public ownership of utilities, cost-of-living support and higher defence spending were welcomed by Labour MPs but blamed by critics, including his own former economic adviser Jim O'Neill, for worsening the market turmoil that has hit government bonds worldwide amid fears over inflation, deficits and AI-driven demand for capital.
The cost of 10-year UK government borrowing briefly hit 5.29% on Wednesday, its highest since 2008, complicating the task facing Chancellor John Healey ahead of his 28 October budget. Analysts warn rising debt interest could erode up to half of the £24bn fiscal headroom built up by his predecessor, Rachel Reeves, while insiders say Healey needs double-digit headroom to reassure markets, leaving little room for extra spending on defence or measures such as a VAT cut on electricity bills. The IFS's Helen Miller noted debt interest now consumes one in every £12 of government spending, adding to pressures from weaker growth forecasts and defence demands, while Kemi Badenoch accused Burnham of failing to say no to spending requests.
- Burnham pledges fiscal responsibility amid bond market sell-off before budget
- UK 10-year borrowing costs hit 5.29%, highest since 2008
- Rising debt interest could wipe out half of Reeves's £24bn fiscal headroom
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Government bonds are loans that investors make to the state, and their yields show how much it costs the government to borrow. Yields can rise when investors worry about inflation, government borrowing or the supply of money available to lend; similar concerns have affected government debt markets in several countries.
Andy Burnham is the prime minister, and John Healey is the chancellor responsible for the government’s finances. Healey is preparing a budget, which sets out plans for taxes, spending and borrowing, while Rachel Reeves, the previous chancellor, had set aside a financial margin known as “headroom” to help meet the government’s fiscal rules.
Higher borrowing costs can increase the interest bill on government debt, leaving less room for other spending or tax changes. The debate matters because the government faces competing demands, including defence spending and help with household costs, while trying to keep borrowing within its financial plans.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Burnham’s commitments respond to significant public needs: easing living costs, strengthening defence and bringing essential utilities into public ownership. Supporters can argue that investment and targeted help may improve economic resilience and living standards, while a clear promise of fiscal responsibility shows these goals need not mean abandoning budget discipline.
The case against
With borrowing costs high and debt interest already taking a growing share of public spending, adding commitments could further narrow the budget’s room for manoeuvre. Critics can argue that reassuring markets requires credible limits on spending, since higher borrowing costs may consume fiscal headroom and leave less capacity to respond to future pressures.