Chancellor Rachel Reeves has told Greater Manchester Mayor Andy Burnham to 'stick to what I'm doing' on the economy, in a blunt exchange that underscores the Treasury's iron grip on fiscal policy. The remark, delivered during a private meeting in Downing Street, comes as gilt yields edge higher and market jitters persist over the UK's debt trajectory.
For a Chancellor who has spent her first months in office preaching fiscal responsibility, the message is clear: no deviation from the path of austerity lite. Reeves, a former Bank of England economist, knows the markets are watching. A slip in discipline, a whiff of unfunded spending, and the bond vigilantes will send borrowing costs soaring. Burnham, by contrast, represents the Labour left's yearning for greater public investment, a tension as old as the party itself.
The Treasury's insistence on discipline is not merely ideological. With UK government debt at 100% of GDP, the highest since the 1960s, there is precious little room for error. The Office for Budget Responsibility's March forecast showed the Chancellor on course to meet her fiscal rules by a razor-thin margin of 8.9 billion pounds. Any new spending pledges, especially those tied to local governments, could blow that hole wide open.
Burnham's push for more devolved fiscal powers, including control over business rates and transport levies, directly challenges the Treasury's centralising orthodoxy. But Reeves's retort suggests she views such demands as a distraction from the core mission: stabilising the public finances. The Chancellor's calculation is simple. The electorate punished the Tories for the Truss debacle. It will punish Labour if it repeats the sin of fiscal incontinence.
The irony is that both Labour and the markets now share a common obsession: the credibility of the UK's fiscal framework. The Bank of England's rate-setting committee has flagged the risk that persistent inflation could be compounded by loose fiscal policy. A Chancellor who blinks on discipline risks a repeat of September 2022, when gilt yields spiked and the pound plunged. Reeves is not about to become the next Kwarteng.
But the tension is not going away. Burnham represents a broader political pressure within Labour for something bolder, something Keynesian. The Chancellor's retort suggests she is willing to absorb that pressure, at least for now. The market verdict? Cautious approval. Ten-year gilt yields, while elevated, have not spiked on the news. Investors are giving Reeves the benefit of the doubt, but the scrutiny is relentless.
The bottom line: The Treasury has drawn a line in the sand. Whether it holds depends on the economic data. If growth disappoints or inflation proves sticky, the leash will tighten further. Burnham and his ilk will have to wait for better times. And in this climate, better times are a speculative asset, not a guaranteed return.
