Burnham’s government faces credibility test as Budget looms and critics question spending plans

The government faces an early credibility test on the economy with just 42 days to go before Chancellor John Healey’s first Budget, and growing unease inside and outside the Labour Party about whether the new administration can square its promises with market expectations.

Pressure from figures inside the economic establishment

Commentary from senior economic figures has sharpened scrutiny of the government’s approach. Former Bank of England chief economist Andy Haldane warned on LBC that unless there are signs of cuts to public spending,

"the markets now suspect that this is a traditional tax and spend socialist government with better TikTok videos"

Those remarks are likely to sting because Haldane has at times provided informal advice to the prime minister’s operation. Similar concerns have been expressed recently by the economist Lord O'Neill, another intermittent adviser.

The prime minister rejected that characterisation as he responded directly to Haldane, saying: "That doesn't tell the story. We are not that." He pointed to the decision to put the digital ID programme on hold as an example of taking difficult spending decisions and said he would continue to make tough calls to keep the economy on track.

Policy choices and the optics of reprioritisation

How the government frames its early choices matters. The pause on the digital ID programme was announced in the days immediately before the prime minister took office. It was presented as a move to concentrate on measures addressing the cost of living.

However, within the new administration’s first few days the funds associated with that policy were reallocated to finance a cut in VAT on household electricity bills. The transfer has been criticised as a reprioritisation rather than a net reduction in public spending — a distinction that critics say undermines claims of fiscal restraint.

That point was underlined at the time by the former cabinet minister Darren Jones, who argued the government had not yet demonstrated genuine spending reductions.

• 42 days until the Chancellor’s first Budget.
• Senior economists, including Andy Haldane and Lord O'Neill, have expressed reservations about the government’s fiscal stance.
• Delay of the digital ID programme was cited as evidence of spending restraint but the funds were reallocated to cut VAT on household electricity bills.

Economic backdrop and political consequences

The economic environment complicating ministers’ options is not solely domestic. The piece notes broader global pressures such as the persistence and escalation of geopolitical conflicts in the Middle East and Ukraine, and the impact of an AI-driven investment boom that is contributing to higher borrowing costs across countries.

Domestically, however, Labour must manage the narrative that it is not reverting to a traditional model of high spending and high taxation at a time when markets and some commentators are primed to read any large-scale fiscal package as confirmation of that approach.

That narrative is politically charged. The prime minister has defended his record by pointing to early decisions he says show fiscal discipline. Yet advisers and party figures who fear market scepticism will be looking for clearer evidence of constrained public spending or credible plans to reassure investors before the Chancellor unveils his measures.

What to look for before the Budget

In the weeks ahead, attention will focus on:

• any further announcements on spending reprioritisation or cuts;
• detailed fiscal plans from the Treasury that can be assessed for credibility by economists and markets; and
• responses from market commentators and the International community to the government’s stated intentions.

How the administration navigates these choices will shape perceptions of its economic competence in the opening weeks of its term. With little more than a month until Mr Healey’s first Budget, the government’s ability to demonstrate credible fiscal management will be central to both market confidence and political stability.