Faisal Islam: The new PM has big ideas - but what will they cost?

New UK Prime Minister Andy Burnham has outlined broad policy changes, but now faces the constraints and trade-offs of national office. His recently announced cost of living support measures, for instance, will necessitate either tax increases or spending cuts, revealing his priorities as economic pressures mount.

Financial markets have already shown sensitivity to Burnham's proposed "flexibility" in borrowing rules. The UK government's 10-year borrowing rate rose above 5% on Monday, a move not mirrored in other European economies. This increase, though not substantial, highlights market scrutiny during Burnham's cabinet overhaul.

The "flexibility" reportedly pertains to the treatment of financial institutions, potentially exempting certain borrowings from debt measures, a model previously seen in green energy policies. There is speculation this could extend to housing and other infrastructure projects, rather than a general relaxation of borrowing rules.

Burnham's administration is also seriously considering unfreezing the income tax threshold, a policy backed by several major unions. This could cost at least £4 billion, depending on inflation. The current freeze, implemented by former chancellor Rishi Sunak to fund COVID-19 lockdowns, was extended by Rachel Reeves until 2030-31, pushing many workers into higher tax brackets.

Unfreezing the thresholds to £13,000 for the basic rate and £52,000 for the upper rate, or even rolling them back to their pre-freeze trajectory, would be significantly more expensive. The policy's potential appeal to union members earning around £50,000, such as nurses and teachers, is noted. However, this adds to a list of net spending policies, raising questions about the extent of necessary tax rises or additional borrowing to balance the budget.