How will the markets react if Burham becomes Prime Minister?

 It's beginning to look like Burham will be crowned as Prime Minster with little opposition.

We don't know much about him but it's looking like he will be far more left wing than Starmer.

It looks like his policies will be 

1/ Greater public ownership / control of utilities (especially water and energy)

2/ Large-scale public investment in infrastructure and housing

He has backed spending £40 Billion on council housing. Is supportive on rent controls.  He wants to reduce bus fare caps back to £2 from £3.

So let's look at these.

Taking water into public ownership depends on the approach.   The lower end cost to the tax payer would be £60 Billion but is likely to result in legal battles.  A less confrontational  approach would cost in the region of £150 Billion.   Big sums to pay out for a capital intensive low margin business. It's hard to see what we would gain. At least with private ownership you can fine them for pollution breaches.

What about energy?  Well to nationalise all of it is likely to be of the order or £500 Billion.

 Re-nationalising the grid is probably more like £100 Billion.

These are big ticket items.

Reducing the bus fare from £3 to £2 is a much more modest £3 Billion per year. 

So what about £40 Billion on council housing?  Well the current Labour plan needs at least £240 Billion to achieve 1.5 Million homes.   So £40 Billion won't go far. It might build 160k new homes.  However council rents are not enough to service the debt to build these houses.  Break-even is around 70 years assuming rents increase with inflation and the debt doesn't increase. 

Landlords are already fleeing the market, rents are increasing as a result as there's less supply so making it worse with rent control is likely to lead to large scale homeless as private landlords exit the market.

So Andy looks like he's going to dramatically increase public borrowing.  The problem is however Rachel has beat him to it.  The debt pile is now a colossal £3 TRILLION and she is borrowing money each month just to pay the interest on the debt.  There simply isnt enough tax income to spend more.  We really need a massive austerity programme slashing government by about 20% - not increasing government debt from £3 Trillion to £4 Trillion.

Andy is a nice chap and wants to be seen as a nice guy so he's not about to slash public spending.  He's going to dig a bigger hole. 

The problem is the bond market is already nervous about the size of the UK debt.  We have the highest debt service cost to GDP ratio  of any country in the world.  OK France and Japan have  bigger debt but their costs to service are far lower than ours.  They are lower risk.  So splashing the cash will make the bond markets more nervous which will increase the cost to service the debt we already have.  

Hopefully Burnham is not as stupid as I think he is....



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