As Andy Burnham steps into the role of Prime Minister, he faces a daunting task: revitalizing Britain's economy amidst global shocks and a long-standing stagnation in living standards. His ambitious agenda, centered on 'good growth in every postcode,' aims to tackle deep-rooted regional disparities and underinvestment. This article delves into Burnham's economic priorities, exploring the challenges and opportunities that lie ahead.
Reindustrialization: A Focus on Manufacturing
Burnham's plan to strengthen the industrial strategy is a bold move, particularly given the decline of Britain's industrial base from 30% to just 10% of the economy since 1979. However, this strategy is not without its critics. Some experts argue that clinging to the past is not a recipe for modern economic success, especially when the UK's comparative advantages lie in the service sector. Nevertheless, pockets of strength remain in the old manufacturing heartlands, and supporting these areas is a key component of Labour's industrial strategy.
What makes this particularly fascinating is the potential for a revival of manufacturing in an era of heightened geopolitical tensions. Right-wing populists have capitalized on the consequences of deindustrialization, targeting communities that have suffered from factory closures. By promising to support these communities, Burnham aims to win back Labour voters who may be considering a switch to Reform UK. This strategy could be a game-changer, especially if it helps to address the root causes of economic inequality and regional divisions.
Devolution: Power to the People
Burnham's pledge to bring about the 'biggest rebalancing of power' in British history is a bold move, especially given the country's highly centralized tax and spending policies. The establishment of a new hub for No. 10 in Manchester and the devolution of powers to regional leaders are significant steps towards a more decentralized governance model. This approach has the potential to drive up the output of underperforming regions, as highlighted by the Organisation for Economic Cooperation and Development.
However, devolution is not a panacea. It may create inefficiencies and require significant financial resources to be successful. Local government, weakened by a decade of deep cuts, may lack the capacity to implement these changes effectively. Moreover, the process of restructuring power will take time, and it remains to be seen whether Burnham's ambitious timeline can be achieved.
Cost of Living: Providing Breathing Space
Burnham has promised to give families struggling with the cost of living crisis some 'breathing space.' This is a critical issue, given the soaring costs driven by energy price shocks and the wars in Ukraine and the Middle East. Inflation has been locked above the 2% target for five years, and household incomes have fallen for the first time in modern history. Without a change in course, the Joseph Rowntree Foundation warns that this trend could continue.
While the impact of the Iran war has been smaller than feared, prices remain significantly higher than pre-pandemic levels. Burnham faces pressure to take more radical steps to address the cost of living, including an affordable energy guarantee, rent controls, cheap bus fares, and an expansion of free school meals. His vision for greater public control over key utilities is also a potential game-changer, especially if it helps to reduce costs and improve access to essential services.
Youth Unemployment: A Growing Concern
The rise in unemployment, particularly among young people, is a cause for alarm. The Iran war, elevated interest rates, and the cost of living crisis have all contributed to a decline in hiring confidence. Business leaders also blame tax increases for making matters worse. However, the issue runs deeper than these immediate factors.
Ministers are increasingly concerned about a longer-term shift in youth employment, driven by rising mental ill-health, the impact of social media, and AI disruption. As a result, the number of young people not in employment, education, or training has risen above a million for the first time in a decade, accounting for 13.5% of all 16- to 24-year-olds. This is a worrying trend, as it could have long-term implications for the UK's economic productivity and social cohesion.
Burnham's plan to strengthen technical education and the apprenticeship system is a step in the right direction. However, it remains to be seen whether these measures will be enough to address the root causes of youth unemployment and help young people navigate the changing landscape of work.
Defence Spending: A Balancing Act
Burnham faces a significant challenge in finding an extra £4.7bn over five years for defence, especially given the tight constraints on public finances and other pressures to fund public services and welfare spending. The Office for Budget Responsibility has warned that the UK is on an 'unsustainable' trajectory, highlighting the complexity of the task ahead.
While Labour has committed to spending 3.5% of GDP on defence by the middle of the next decade, the path to achieving this goal is far from clear. The decisions made by the new prime minister in his next budget-setting and spending review process will be crucial in determining the success of this commitment.
Housing: A Priority for Burnham
Burnham's pledge to oversee the 'biggest council house building programme since the postwar period' is a welcome development, especially given the rise in the number of families on social housing waiting lists. Under Starmer, Labour had already pledged £39bn to social and affordable homes and a target to build 1.5m new homes in total. However, the government may struggle to hit this ambitious target, given that the last time more than 300,000 homes were built in a single year in England was 1969.
Greater transport investment and housing provision would have significant benefits, supporting labor mobility and productivity. This is a critical component of Burnham's economic agenda, as it has the potential to address regional disparities and improve living standards for families across the country.
Fiscal Rule: A Tightrope Walk
The biggest challenge for Burnham, as for previous prime ministers, is how to pay for his ambitious plans. The role of his chancellor will be crucial in this regard, with Shabana Mahmood tipped to secure the role. Burnham's commitment to retaining the self-imposed borrowing and debt constraints drawn up by Rachel Reeves is a significant statement, especially given the potential for a market backlash.
While Reeves had put the UK on a faster path to cutting its annual borrowing levels than other G7 economies, the spending pressures and febrile conditions in financial markets worldwide mean that the UK's borrowing costs remain elevated. This is a delicate balancing act, and Burnham will need to navigate it carefully to avoid further driving up the UK's already substantial bill for servicing the national debt.
In conclusion, Burnham's economic agenda is ambitious and multifaceted. While it faces significant challenges, it also presents opportunities to address long-standing issues of regional inequality, underinvestment, and social cohesion. The success of this agenda will depend on the ability of the new prime minister and his team to navigate complex fiscal constraints, implement effective policies, and deliver on their promises to the British people.
