Borrowing costs soar as Andy Burnham eyes ‘flexibility’ in fiscal rules under new Chancellor John Healey
Andy Burnham, in his first acts as Prime Minister, has appointed John Healey as Chancellor of the Exchequer while pledging to use "any flexibility" within existing fiscal rules, a comment that sent UK government borrowing costs sharply higher. The yield on ten-year gilts rose above 5.04 per cent, a level breached only recently for the first time since 2008 and higher than under Liz Truss, as investors reacted nervously to signals of looser fiscal discipline. Since higher gilt yields typically feed through into mortgage and business borrowing costs, the move raises concerns about pressure on household finances and corporate profits just as the new government sets out its economic direction.
The rise was reportedly the fastest among G7 nations, with commentators including former Osborne adviser Rupert Harrison and economist Mohamed El-Erian flagging it as an early warning sign for the Burnham government. Britain already borrows more expensively than any other G7 country. Healey, who resigned from Sir Keir Starmer's government last month over defence spending, replaces Rachel Reeves, who was sacked after also presiding over rising borrowing costs, and will now face the task of addressing a defence budget shortfall ahead of a Budget expected this autumn.
- Andy Burnham names John Healey as new Chancellor of the Exchequer.
- Gilt yields hit 5.04%, fastest G7 rise, on fiscal rule fears.
- Healey must fill defence budget gap before autumn Budget.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Supporters of greater fiscal flexibility argue that rigid, self-imposed borrowing rules can prevent governments from making the long-term investments the country badly needs, whether in housing, transport or the NHS. They contend that not all borrowing is equal, and that money spent on productive infrastructure can pay for itself many times over through growth, so treating fiscal rules as fixed dogma rather than a means to an end is short-sighted. On this view, a Chancellor willing to explore genuine flexibility is being pragmatic rather than reckless, and short-term market jitters should not automatically override considered judgements about the country's long-term needs.
The case against
Critics of loosening the fiscal rules argue that market confidence is hard-won and easily lost, and that even the suggestion of flexibility can push up gilt yields, raising the cost of servicing the national debt and, in turn, mortgage rates for ordinary households. They point to recent history, where perceived fiscal irresponsibility triggered turmoil in the bond markets, as a cautionary tale about how quickly credibility can unravel. From this perspective, strict adherence to clear fiscal rules is not dogma but a necessary discipline that keeps borrowing costs low, protects the most economically vulnerable from inflation and instability, and preserves the government's room to manoeuvre in future crises.