Andy Burnham is poised to enter Downing Street as prime minister, inheriting an economy grappling with global shocks, years of stagnant living standards, underinvestment, and deep regional disparities. His core pledge is to deliver "good growth in every postcode" by decentralizing power from Westminster to local communities, a task complicated by public finance pressures and the proximity of the next general election.
A cornerstone of Burnham's economic strategy will be a revitalized industrial policy aimed at fostering growth beyond London and the South East. This includes a commitment to "safeguard sovereign manufacturing and production capability" in vital sectors such as steel, defence, energy, food, and farming. This focus on domestic manufacturing is gaining traction globally amid rising geopolitical tensions, with political movements often capitalizing on the fallout from deindustrialization in traditional manufacturing areas.
Britain's industrial base has significantly shrunk since 1979, now representing about a tenth of the economy compared to 30%. Despite this, pockets of manufacturing strength persist in historical industrial heartlands, which Labour's strategy aims to support. However, some economists caution against solely relying on the industrial past, suggesting that the UK's comparative strengths increasingly lie in services. High energy costs and competition from Asian manufacturing hubs also present significant challenges.
Burnham's economic philosophy, often termed "Manchesterism," draws heavily from Manchester's revival. Analysts note, however, that the city's success was primarily fueled by private investment in knowledge-intensive business services, rather than a resurgence of traditional industries like cotton mills.
The UK is characterized by a highly centralized tax and spending policy among G7 nations and exhibits significant economic inequality. Burnham has vowed to enact "the biggest rebalancing of power the country has ever seen," including establishing a new Number 10 hub in Manchester and potentially devolving tax powers to regional leaders. The Organisation for Economic Cooperation and Development (OECD) has indicated that devolution could boost the UK economy by improving the performance of underperforming regions, provided there is a coordinated approach to skills, infrastructure, innovation, finance, and governance.
Conversely, some experts warn that devolution does not inherently guarantee stronger growth. While enabling tailored local responses, it could introduce inefficiencies and requires substantial financial backing. Furthermore, local government capacity has been eroded by years of budget cuts and restructuring, meaning the implementation of devolved powers will likely be a lengthy process.
Burnham has also pledged immediate relief for families struggling with the cost of living crisis, with a support package anticipated within weeks. Soaring costs, exacerbated by energy price shocks linked to conflicts in Ukraine and the Middle East, have kept inflation above the Bank of England's 2% target for five years. Following over a decade of stagnant real wage growth, household incomes have declined, a trend the Joseph Rowntree Foundation warns could recur without policy changes.
Some within the Labour party believe Burnham has fiscal room due to the Iran war having a less severe economic impact than initially feared, with the latest Ofgem energy price cap increase being smaller than in 2022 and occurring during lower-demand summer months. Nevertheless, energy prices remain substantially higher than pre-pandemic levels. Critics are urging Burnham to adopt more radical measures, such as an affordable energy guarantee, rent controls, subsidized bus fares, and expanded free school meals. Burnham has also expressed interest in greater public control over utilities like water, energy, and transport.
Recent months have seen unemployment rise to its highest point since the COVID-19 pandemic, with young people disproportionately affected. The economic impact of the Iran war, elevated interest rates, and the cost of living crisis have dampened hiring confidence, with business leaders also citing tax increases as a contributing factor. A more concerning long-term trend is the rise in youth unemployment, linked to increasing mental ill-health, social media's influence, and AI disruption. The number of young people not in employment, education, or training (NEET) has surpassed one million for the first time in a decade, representing 13.5% of 16- to 24-year-olds.
Burnham plans to address youth unemployment by strengthening technical education and apprenticeships. He also awaits final reports from reviews on youth worklessness and disability benefits, both of which have recommended welfare reforms.
The new prime minister faces the immediate challenge of funding an additional £4.7 billion for defence in his first budget, a commitment made by Keir Starmer without a clear funding plan, alongside an announced £15 billion increase in military spending. The Treasury anticipates raising £10.3 billion through budget reallocations across government departments, with many of these decisions falling to Burnham's administration. Labour has committed to increasing defence spending to 3.5% of GDP by the mid-2030s, but tight public finances and competing demands for public services and welfare spending complicate this goal, with the Office for Budget Responsibility (OBR) warning of an "unsustainable" fiscal trajectory.
Burnham has pledged to initiate "the biggest council house building programme since the postwar period," linking the loss of nearly 1.5 million council homes since the 1980s to the current high levels of social housing waiting lists. Labour's prior commitment under Starmer included £39 billion for social and affordable homes, aiming for 1.5 million new homes in total. However, achieving this target is challenging, as England has not built over 300,000 homes in a single year since 1969, when nearly half were council-built affordable homes.
Economists agree that increased investment in transport and housing would yield significant benefits, supporting labor mobility and productivity. The overarching challenge for Burnham, as for his predecessors, will be financing these ambitious plans. The role of the chancellor, with Shabana Mahmood reportedly favored over Ed Miliband for the position, will be critical.
Burnham has assured investors that his agenda will be "backed with sound public finances and the discipline of our current fiscal rules," aiming to signal stability to jittery bond markets. Adhering to the borrowing and debt constraints set by Rachel Reeves is seen as crucial to avoiding a market backlash that could further increase the UK's national debt servicing costs, which already exceed £100 billion annually. Reeves' fiscal plan put the UK on a faster path to reducing borrowing than other G7 economies, but elevated global financial market volatility and domestic spending pressures mean borrowing costs remain high.
