What's Happening
Andy Burnham faced his first Prime Minister's Questions as UK borrowing costs rise, with the Resolution Foundation warning that defence spending increases are incompatible with current tax policy. The thinktank argues the UK's "tax wedge"—already low by international standards—must rise to fund defence ambitions.
Market Impact
Rising gilt yields and fiscal constraints narrow the government's policy options. Any tax increase targeting middle earners could dampen consumer spending and business investment, while failure to fund defence adequately signals geopolitical vulnerability and may pressure sterling.
Broader Implications
The UK faces a classic fiscal trilemma: rising defence needs (driven by Russia and China), aging demographics, and political resistance to tax increases. This tension will define the next parliamentary term and constrain economic policy flexibility.
