Andy Burnham has lit the fuse on the boldest fiscal bet of his premiership, and gilt investors will decide within weeks whether it strengthens Britain’s finances or blows a fresh hole in them, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green come as the Prime Minister tells Labour’s conference the party will adjust the state pension triple lock in its next manifesto. Pensions would instead rise each year with inflation or 2.5%, freeing money to bankroll a universal National Care Service.
He says: “For 15 years, no serious politician has dared lay a finger on the triple lock. Andy Burnham’s just put both hands on it.
“Bond investors will like the direction. Anything that bends Britain’s long-term spending curve downwards is exactly what gilt buyers have been demanding for years.
“The problem is every pound clawed back from pensioners is already spoken for.”
The triple lock lifts the state pension annually by whichever is highest of inflation, earnings growth or 2.5%. Introduced in 2011, it has drawn fire from economists of every stripe for pushing pensions steadily ahead of wages.
Britain’s leading independent fiscal think tank estimates it could add as much as £40bn to public spending over the next quarter of a century. Official forecasters project the state pension bill climbing by more than £15bn a year by 2030 under current rules.
Against that, the care system Burnham wants could cost £18bn a year by 2035.
Nigel Green says: “Markets will look hard at the timing. Pension savings drip in slowly over decades. Care costs land the day the service opens.
“Gilt traders price that gap. If the new spending arrives years before the savings, Britain borrows the difference, and the bond market charges for it.”
UK government bonds outperformed global peers in the run-up to the speech as reports of the pension shift circulated. The 2-year yield dropped 13 basis points and swap spreads, a gauge of fiscal risk, narrowed slightly.
Yet 10-year borrowing costs remain around 5.3%, among the steepest in the G7. On Burnham’s first day in Downing Street in July, a passing remark about fiscal “flexibility” drove 30-year yields to 5.75%.
The deVere CEO says: “Traders have already given him a small vote of confidence. It’s conditional and it’s thin.
“Other Labour ministers are still insisting the triple lock stays because it was in the 2024 manifesto, and the unions are furious. A reform the Cabinet won’t defend in public is one the market will discount heavily.
“Pensioners vote in huge numbers. Investors know how many bold pension reforms have died on contact with the ballot box.”
The speech carried a second jolt for fixed income. Burnham pledged to lift the ban on public ownership of water companies, opening a path to bringing multi-billion pound businesses into state hands over 10 years.
Nigel Green says: “Water’s the sleeper risk here. Nationalisation means buying out owners and absorbing sizeable debts.
“Bond investors will ask straight away how much of that lands on the public balance sheet and how much fresh gilt issuance it demands.
“Pair a long-dated saving with an open-ended purchase and markets won’t take the net figure on trust.”
Chancellor John Healey delivers his first Budget on 28 October, reportedly with roughly half of the £23.6bn fiscal buffer he inherited already gone.
The Bank of England is widely expected to raise rates in November, while US 10-year yields sit at 5.21%, their highest since 2007.
He says: “Everything now hinges on October’s Budget. Show fully costed care, a credible water plan and rebuilt headroom, and gilts could reward the government’s courage with a meaningful rally.
“Leave the sums vague and investors will fill the blanks with their own worst case.
“Britain’s bond market has shown before how brutally it can punish a government it doesn’t trust.
“Andy Burnham’s bet is brave. Now he has to prove it adds up.”
