Andy Burnham would enter Downing Street already “boxed in” by financial markets if he signals a rise in borrowing to pay for a more expansive policy agenda, bond investors have warned – even as the man expected to be the next prime minister picks his team for government.
The newly elected MP for Makerfield, who is widely expected to become prime minister next month after winning the support of his most likely rival, Wes Streeting, has chosen his Blairite former colleague James Purnell as his chief of staff, the Guardian understands. If finalised, Purnell would become the first major appointment to a putative Burnham government.
“Bond investors warn Burnham is 'boxed in' as he picks James Purnell as chief of staff and faces fiscal pressures.”
Purnell, a former work and pensions secretary who resigned in protest against Gordon Brown’s premiership in 2009, has indicated he will take the job though terms are still being negotiated. The role would be a remarkable return to government for the one-time cabinet minister, who later joined the BBC as director of strategy before becoming chief executive of the lobbying firm Flint Global in 2024.
But the appointment comes as Burnham faces acute financial constraints. “He is boxed in by the fact that government finances are in a weak position, and if he chooses to ignore this reality, then he could find himself under pressure very quickly,” said Mark Dowding, chief investment officer at the hedge fund RBC BlueBay.
With Liz Truss’s disastrous mini-budget still casting a shadow over UK fiscal policy, Burnham alarmed some investors last year when he said the UK was “in hock” to the bond markets, a stance he has since moderated. Dowding said: “Markets are more prone to be sceptical at the outset if he tries to be too adventurous … from that perspective Burnham could be walking a tightrope partly of his own making. It won’t take too many headlines for the bond markets to suddenly be on its back.”
If he becomes prime minister, the former Greater Manchester mayor will be expected to follow through on pledges including nationalising key utilities and a council housebuilding programme. How he pays for them remains unclear. During his campaign for Makerfield, Burnham committed to the fiscal rules set by Rachel Reeves, in a signal that he would not oversee a dramatic rise in borrowing. But he has also committed not to raise income tax, VAT or national insurance, limiting his ability to raise money from taxpayers.
“It is a very challenging backdrop for Burnham to come in against. He needs to deal with what is in front of him, not what he’d like to be inheriting,” said Andrew Goodwin, chief UK economist at Oxford Economics. “Anywhere he wants to spend more, he’s going to have to either cut spending elsewhere to finance it, or he’s going to have to increase taxes. This isn’t a time where you can come in and pursue really big picture ideas.”
On Tuesday, one of Burnham’s advisers, Jim O’Neill, a former chief economist at Goldman Sachs and minister, called for billions of pounds more borrowing to pay for investment in infrastructure.
The chancellor appointment will be critical: Labour figures are still jostling over who would take that senior role. Many around Burnham want him to choose energy secretary Ed Miliband, though others warn this would anger the business community and some unions. Those on the right of the party argue Wes Streeting would be a more sensible pick, able to reassure bond markets – a choice that could determine whether the tightrope holds.