Andy Burnham will move into Downing Street on Monday, but the question of who will live next door in Number 11 remains unanswered – and the answer could shape his entire premiership.
Officially, Burnham’s team says no decision on chancellor has been taken and cabinet announcements won’t be made until Monday. But the speculation is intense, with the BBC told there are “live discussions” about putting home secretary Shabana Mahmood into the Treasury, while the Financial Times reports it as a certainty based on three sources close to Burnham.
“Andy Burnham inherits sinking inflation but faces party rift over chancellor and green backlash on North Sea drilling.”
Mahmood, a senior minister on Labour’s right without an economics background, is seen as someone who could reassure financial markets. Kathleen Brooks, research director at XTB, noted the pound rose about 1% against the US dollar this week on the reports, saying: “It tells us two things about Andy Burnham’s government: firstly, the market trusts Mahmood to take a sensible approach to economic policy, and to tackle the hard questions of welfare spending; secondly, Burnham is willing to have those to the right of the Labour party in his cabinet in key economic roles.”
However, the Press Association reports Mahmood is keen to remain as home secretary and see through asylum system changes. Meanwhile, the left of the party is upset, with The Times saying they would prefer Ed Miliband, the former Labour leader and current energy secretary. Miliband is politically closer to Burnham, but some analysts see him as an inflation risk, blaming his net zero drive for high energy prices.
The chancellor will inherit a daunting in-tray: high debt, low growth, welfare reform, defence spending, and the economic fallout from the US-Israel war with Iran. On Wednesday, official figures are expected to show June’s Consumer Prices Index inflation slowed to 2.4%, down from 2.6% in May, driven by a record fall in petrol and diesel prices after news of an interim US-Iran ceasefire. But economists warn this is temporary relief. Ofgem’s new energy price cap took effect in July, raising typical household bills by £221 to £1,862 a year – a 13% increase. Sanjay Raja, chief UK economist for Deutsche Bank, said to expect a “bumpy path”, and Victoria Scholar of Interactive Investor predicted inflation would peak at around 3.5% later this year.
Adding to the pressure, reports have emerged that new oil and gas will be allowed in the North Sea under Burnham – a “drill baby drill” message pushed by Donald Trump, the Conservatives and Reform UK. The Greens declared it would be a “terrible start” to Burnham’s premiership. Miliband, the current energy secretary, has previously called drilling a “climate disaster”.
The choice of chancellor will be crucial in the longer term, with Investec analysts warning that any indication of plans to increase public spending could put pressure on UK inflation. For now, Burnham’s first week will be defined by inflation data, a party rift over the Treasury, and a looming battle over fossil fuels.