Andy Burnham, who is tipped to become Britain’s next prime minister after Keir Starmer resigned, has decided to reassure worried investors that government spending and debt could rise under his leadership.
Burnham would like to see a partial renationalisation of the UK’s water and power industries, which would cost billions of pounds and follow Starmer’s move to bring Britain’s train operators under state control.
AFP looks at how the Labor government’s economic policies could change under Burnham, who is seen as more left-wing than Starmer.
– What course for economics? –
Burnham, who resigned as mayor of Greater Manchester before his parliamentary victory in a by-election last week, has been rather vague about his economic intentions if he becomes prime minister.
But after being re-elected as an MP on Friday, he launched an attack on the “slick economy” – the idea that the wealth created by the richest eventually benefits everyone.
“We need to cut water bills, energy bills, rail fares, just like we’ve cut bus fares in Greater Manchester to make life more affordable for people,” Burnham said.
In the same speech, the advocate of “business-friendly socialism” called for “a new push for reindustrialization” across the country, suggesting greater state spending and possible tax increases.
According to Britain’s Press Association, Burnham will use a speech next week to confirm his support for finance minister Rachel Reeves’ strict fiscal rule that day-to-day government spending is balanced against tax revenue.
Burnham, who supports the need to reduce the government’s debt, will also use the speech to outline key aspects of his proposed economic policy.
– What do investors think? –
If under Burnham “the government sets out a credible economic and fiscal strategy, then markets will be fine,” Jonathan Portes, a professor of economics and public policy at King’s College London, told AFP.
“This does not rule out some relatively minor modifications to the fiscal rules to allow somewhat more borrowing for investment but not for current spending,” he said.
Financial markets have so far taken Burnham’s election victory and Starmer’s resignation in stride, with the pound avoiding any sharp decline and the UK’s benchmark 10-year government bond rate falling.
“Burnham has been on a fascinating offensive to win over those all-important bond markets as speculation has mounted about his possible ascension to the top job,” said Danni Hewson, head of financial analysis at trading group AJ Bell.
But Matthew Ryan, head of market strategy at global financial services firm Ebury, warned that “the transition itself will bring a period of uncertainty that markets will find uncomfortable”.
At the same time, Burnham would inherit a British economy that showed signs of growth before the US-Iran war stunted growth and fueled inflation.
– New finance minister? –
Energy Secretary Ed Miliband is seen as a strong favorite to succeed Reeves as finance minister, with her position said to be at risk following Starmer’s resignation on Monday.
“A change in leadership … may change the size of the state. But it won’t change the fiscal realities,” said Ruth Gregory, deputy chief UK economist at research group Capital Economics.
“Those on the ‘soft left’ of the Labor Party (like Miliband) may be more inclined to increase spending and borrowing than those on the ‘soft right’, who would probably offset any increase in spending with spending cuts elsewhere or tax increases,” she added.
Other names mentioned as a possible replacement for Reeves include Home Minister Shabana Mahmood, Foreign Secretary Yvette Cooper and former health minister Wes Streeting, who is backing Burnham to become prime minister.
