UK Treasury ‘saying no to everything’ will hit growth, warns Andy Burnham

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The UK Treasury needs to help unlock infrastructure investment rather than “saying no to everything”, a senior Labour party figure has said, as fears grow about looming spending cuts in next month’s Budget.

Andy Burnham, mayor of Greater Manchester and a former Treasury minister, said Whitehall’s powerful finance ministry will have to fundamentally change the way it thinks if chancellor Rachel Reeves is to hit her overriding goal of boosting economic growth.

Upcoming decisions on transport infrastructure outside London and the South East provide a particular test for the government’s growth ambitions, he said.

“There are a number of ‘growth tests’ looming — not least on rail infrastructure — and we will find out soon whether the Treasury is able to transform itself into the growth department,” Burnham told the Financial Times.  

“It needs to understand that growth comes from giving hope and planting seeds, rather than saying no to everything.”

Reeves took office in July vowing to lead Britain’s most “pro-growth” Treasury as she and Prime Minister Sir Keir Starmer aim for the fastest growth in the G7 group of nations. But many economists worry that Labour will pare back investment in the name of fiscal prudence and undermine its growth ambitions in the process.

A letter from eight leading economists, published this week in the FT, warned that expected cuts to investment spending could damage Labour’s push for a decade of national renewal. 

Separately, the Paris-based OECD warned in a survey last week that factors including inadequate infrastructure, skills gaps, persistent inequalities, and trade barriers created by Brexit could weaken the UK’s medium-term growth potential.

Burnham warned that the Treasury needed to focus on fostering higher economic growth rather than solely on safeguarding the public finances.

“From my time in the Treasury, I always felt the institution saw its primary role as controlling public spending rather than stimulating economic growth,” said Burnham, who was chief secretary to the Treasury between 2007 and 2008 under then-prime minister Gordon Brown.

“I don’t think that has changed in the 16 years since and that is borne out by the UK’s poor record on growth over those years.”

Ambitions to boost investment are constrained by the UK’s key fiscal rule requiring public debt relative to GDP to fall between years four and five of the official forecast.

Detailed information on the fiscal framework will only be available with the Budget on October 30, including on the definition of debt to assess the fiscal headroom.

“There is a risk that the government’s fiscal rules are too tight,” warned Tomasz Wieladek, chief European economist at the investment company T Rowe Price.

“The UK is in dire need of public investment and financial markets would support extra borrowing for greater public investment. Excessive fiscal caution may well mean that public investment doesn’t rise enough to have a large impact on long-term growth,” he explained.

Labour will need to balance calls for higher public investment alongside warnings that the government finances are facing increasing strain.

The Office for Budget Responsibility last week warned that public debt was on an “unsustainable” upward path because of trends such as the ageing population and costs related to climate change. Surging public spending is projected to lead to a rise in the ratio of public debt to 274 per cent of GDP over the coming 50 years, compared with less than 100 per cent now.

Burnham was speaking after a report commissioned jointly with the mayor of the West Midlands warned that the travel corridor between London and north west England would be full within a decade unless a new railway line was built. 

The government’s response is so far unclear and Burnham said he feared officials would continue using the Green Book, internal Treasury rules that critics have long argued result in investment being ploughed into already productive areas, “to advise ministers to cut infrastructure outside London and the South East”. 

Earlier this month Lisa Nandy, culture secretary, told the FT that the new government would approach such decisions differently, but so far that claim has yet to be tested.

An upgrade to the rail route between Manchester and Leeds is among the capital projects being reviewed ahead of the Budget, the FT reported on Saturday, as the Department for Transport seeks Treasury-imposed savings.

The Treasury is now “in service of a government with growth as its overriding mission”, said Burnham. “But the question arises as to whether the Treasury is ready for that change?”

A Treasury spokesperson said: “The new Chancellor has vowed to lead the most pro-growth Treasury in the country’s history that unlocks wealth and opportunity in every corner of the United Kingdom.

“That work of change has already begun, including the launch of a new national wealth fund to deliver economic growth, unlock investment and make every part of the country better off, ahead of the new Government’s first Budget later this year.”