Britain’s probable next prime minister, Andy Burnham, is already reshuffling his top team before taking office – but the economic inheritance awaiting him offers little room for manoeuvre. According to the Financial Times, Burnham is set to demote Chancellor Rachel Reeves to a lesser cabinet role and install James Purnell as his chief of staff. The move signals a desire for a fresh start, yet the fiscal straitjacket remains the same as under his predecessors.
The BBC’s deputy economics editor Dharshini David notes that Britain has had six prime ministers in a decade, with Burnham likely to become the seventh. What has underpinned that political instability, she writes, is the economy: lack of job opportunities, stagnant living standards and pressured public services. The public expects change, and its patience has worn thin.
“Andy Burnham expected to demote Rachel Reeves and make James Purnell chief of staff, inheriting stagnant growth and tight fiscal rules.”
Burnham has pledged to revive the economy while sticking to the current government’s own borrowing rules: only borrowing to invest, not for day-to-day spending, and reducing debt as a share of the economy within a few years. Before the US-Israel war with Iran started, Chancellor Rachel Reeves had estimated she could meet those rules with £24bn to spare. But much of that cushion has been eroded by the conflict.
Interest repayments on the national debt now account for one in every £10 the government spends, making bond markets jittery. Even the plans Burnham has hinted at – boosting investment, focusing on skills, and more state control of utilities to lower bills – could easily exceed the available wiggle room. He could tweak the fiscal rules or raise money through taxes and cuts elsewhere, but growth remains the number one priority.
Between 1990 and 2007, the average person was better off by roughly 2.5% per year. Since then, living standards have improved at half that rate, leaving households thousands of pounds worse off. A lack of investment – public and private – after years of austerity and then Brexit has hurt productivity, made worse by Covid and higher energy prices. Food prices have jumped by 40% in a few years, clobbering household finances. Meanwhile, hiring is at its lowest level for five years.
Burnham’s ambitions may be thwarted by financial reality. As David warns, some ideas may not survive contact with bond markets.