Britain’s Burnham faces off against bond markets and limits to taxation

Britain has its fourth prime minister in five years. Andy Burnham took office with an ambitious interventionist agenda including social housing construction, re-nationalizations and more industrial planning.

The new leader will have a challenging time implementing his policies given the UK’s lack of fiscal room and the risk of a bond-market revolt.

Indeed, Burnham’s cabinet appointments somewhat rattled gilt prices. (The surprising choice of John Healey as finance minister is a case in point, given that his return to cabinet implies higher defense spending, too.)

Gilt yields remain the highest in the G7, implying a persistent risk premium. Outlays for social welfare are crowding out Burnham’s room for discretionary policy. And the tax burden is at its highest since World War II, surpassing the previous 1969 peak.