Fresh fears over Britain’s debt mountain as Andy Burnham’s economic adviser urges Labour to ‘borrow more’

One of Andy Burnham’s economic advisers has called on Labor to take on more debt, sparking fresh fears about Britain’s debt mountain if it gets into Downing Street.

Jim O’Neill, co-chairman of the Northern Powerhouse Partnership and former Treasury secretary, called on the Government to be ‘bolder on borrowing for investment’.

He suggested more could be done to ‘explore’ Chancellor Rachel Reeves’ fiscal rules in a bid to boost spending.

Lord O’Neill told Sky News: “I think the second part of the fiscal rule, which relates to borrowing for investment, I think that could be explored a lot more and not in a way that scares the financial markets.”

The cross-assessor added: ‘I don’t think you will necessarily have to dismantle the fiscal rules. I think you need to be braver about borrowing money to invest.

‘Given that the UK has a history of 30 years or more, many people currently think that any type of borrowing is a waste of money.

‘But only if you borrow for things that have a really positive multiplier effect.’

There is widespread expectation that Mr Burnham will become prime minister in the coming weeks following his landslide victory in the Makerfield by-election.

Keir Starmer has vowed to fight any leadership challenge and insisted he will not ‘walk away’, but many Labor MPs are demanding he now hand over power to Mr Burnham as soon as possible.

Northern Powerhouse Partnership co-chairman and former Treasury secretary Jim O’Neill has called on the Government to be ‘bolder on borrowing for investment’

Lord O’Neill, co-chairman of the Northern Powerhouse Partnership who served in George Osborne’s Treasury team, was recently revealed to be among three economists appointed by Mr Burnham to strengthen his team of advisers.

Mr Burnham is also said to have sought advice from former Bank of England chief economist Andy Haldane and former head of the Office for Budget Responsibility Richard Hughes.

Lord O’Neill’s comments sparked fresh concerns about the dire state of Britain’s public finances under Labour.

Senior Tory MP Andrew Griffith, the shadow business secretary, told the Daily Mail: ‘Debt is already out of control because the money should be spent on defense rather than paying interest.

‘Now is the time for tough choices, not more dodgy accounting and higher debt.’

During his successful campaign to become the MP for Makerfield, Mr Burnham called for Britain to abandon ’40 years of neoliberalism’.

This brought to the fore allegations that he and potential chancellor candidate Ed Miliband were planning a radical economic agenda for the country.

Britain’s gilt bond yields, which determine the cost of government borrowing, rose on Friday after Mr Burnham’s victory at Makerfield paved the way for an expected bid to oust Sir Keir.

The yield on ten-year bonds rose to 4.84 percent at the close of London stock markets on Friday, from 4.76 percent at the same time on Thursday.

XTB research director Kathleen Brooks said: ‘Andy Burnham may have won a resounding election result at Makerfield last night, but he needs to work hard to convince financial markets that he is the right man for the job of growing the UK economy and getting the debt back under control.’

But Ms Brooks said the rise in yields was not entirely limited to Mr Burnham’s win, with figures showing the government’s borrowing costs in May exceeded forecasts.

Net borrowing by the public sector, excluding public sector banks, reached £23.3bn in May, up 30 per cent on £17.9bn the previous year, according to the Office for National Statistics on Friday.

This figure exceeded the Office for Budget Responsibility’s estimate of £17.7 billion by £5.6 billion.

Ms Brooks said the rise in UK gold yields tells us three things: ‘one, it’s not all because of Andy Burnham; Secondly, you cannot borrow excessive amounts while growth is flat, and thirdly, Burnham will face extremely restrictive conditions if he ousts Starmer.’

JPMorgan analyst Allan Monks thinks there is a ‘high risk’ that Mr Burnham will consider changes to fiscal rules if he becomes Prime Minister, although he has appeared to rule this out in recent weeks.

‘He would need to tread carefully given market pressure, but a change to allow for more growth-enhancing investment spending could work if communicated properly,’ he said.

‘This will have some support from a range of economists and think tanks.’

The UK’s public sector net debt currently stands at around £2.9 trillion; this is equivalent to £100,000 per household.