Andy Burnham becomes prime minister as Britain contends with a series of global economic shocks and years of weak growth in living standards, fuelled by underinvestment and deep regional divisions.
Before his arrival in Downing Street, the Labour leader pledged to deliver “good growth in every postcode” by transferring power from Westminster to local communities. But with the public finances under pressure, and time running out before the next general election, the task is not straightforward.
Here are the areas Burnham has indicated will be his priorities in power, with charts laying out the complexities involved in achieving them.
Reindustrialisation
Burnham has signalled that a strengthened industrial strategy will form a central plank of his agenda to support economic growth outside London and south-east England. This includes a push to “safeguard sovereign manufacturing and production capability … in critical sectors like steel, defence, energy, food and farming”.
Manufacturing jobs chart
Across rich countries, there is a growing focus on domestic manufacturing amid mounting geopolitical tensions. Rightwing populists have sought to capitalise on the consequences of deindustrialisation, targeting small towns and cities that have struggled after the closure of factories. In making promises to these communities Burnham will be hoping to win back Labour voters considering a switch to Reform UK.
Britain’s industrial base has dwindled from about 30% of the economy in 1979 to about a tenth today, yet pockets of strength remain in the old manufacturing heartlands. Supporting activity in these places is core to Labour’s industrial strategy.
However, some experts warn that fetishising the industrial past is not the route to modern economic prosperity, given that the UK’s comparative advantages typically lie in service sector activities. High energy costs and competition from low-cost manufacturing hubs in Asia are also big headwinds.
Burnham has relied heavily on Manchester’s economic revival for his political philosophy, going as far as branding it as “Manchesterism”. But analysts highlight the city’s success has been driven by private investment into knowledge-intensive business services, rather than reopening its cotton mills.
Devolution
Britain is the most centralised G7 country for tax and spending policy, and is among the most economically unequal in the developed world. Burnham has promised to bring about the “biggest rebalancing of power the country has ever seen” – including the establishment of a new hub for No 10 in the north, based in Manchester. He is also expected to hand powers, including over tax, to regional leaders.
Tax revenue chart
This week the Organisation for Economic Cooperation and Development said devolution could play a key role in growing the UK economy as a whole, by driving up the output of underperforming regions. It said a coherent approach to align skills policy, infrastructure, innovation, finance and governance was an “essential” component for improving productivity across regions.
However, others warn devolution does not guarantee stronger growth. While allowing for a tailored response to local issues, it could create inefficiencies, and will need financial firepower to be successful. Local government also lacks capacity after more than a decade of deep cuts and restructuring power will take time to implement.
Cost of living
Burnham has promised to give “breathing space” as soon as he can to families struggling with the cost of living crisis, with expectations for a package of financial support that could be announced within weeks.
Energy price cap chart
Households and businesses have faced soaring costs driven by the energy price shocks from the wars in Ukraine and the Middle East, with inflation locked above the 2% target set for the Bank of England for five years.
After more than a decade of stalling real wage growth, household incomes fell during the last Conservative parliament for the first time in modern history. The Joseph Rowntree Foundation warns this could happen again without a change in course.
Some Labour insiders believe Burnham has leeway because the Iran war is having a smaller impact than feared. The July increase in the Ofgem energy price cap was smaller than after the Russian invasion of Ukraine in 2022, and comes in the summer months when consumption is lower.
However, prices remain significantly higher than before the Covid pandemic and others are urging Burnham to take more radical steps on the cost of living. Policy options could include an affordable energy guarantee; rent controls, cheap bus fares, and an expansion in free school meals.
Burnham has also spoken of the need for greater public control over key utilities including water, energy, and transport.
Youth unemployment
Unemployment has risen to the highest levels since the outbreak of the Covid pandemic in recent months, with young people bearing the brunt.
The Iran war, elevated Bank of England interest rates and cost of living crisis weighing on the economy have hit hiring confidence. Business leaders also blame tax increases for making matters worse.
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Youth unemployment chart
Ministers are however increasingly alarmed over a longer-term shift in youth employment, amid rising mental ill-health, the impact of social media and AI disruption. Against this backdrop, 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.
Burnham has said he will respond by pushing to strengthen technical education and the apprenticeship system. He also enters office awaiting the final reports from two major government-backed reviews: Alan Milburn’s investigation into youth worklessness, and Stephen Timms’ review of disability benefits. Both have called for welfare reform.
Defence spending
Burnham will need to find an extra £4.7bn over five years for defence in his first budget, after Keir Starmer announced £15bn extra in military funding without having fully identified how it will be funded.
Defence spending chart
According to the Treasury, £10.3bn will also be raised by “reallocating budget” from across government departments. Many of the decisions on how this will work in practice will form part of the challenge for the new prime minister to oversee as part of his next budget-setting and spending review process.
Over the long-term Labour has also committed to spending 3.5% of GDP on defence by the middle of the next decade. However, tight constraints on the public finances and other pressures to fund public services and welfare spending will complicate the path, with the Office for Budget Responsibility warning the UK is on an “unsustainable” trajectory.
Social housing
Burnham has pledged to oversee the “biggest council house building programme since the postwar period”. In his speech on the economy last month he linked the loss of almost 1.5m council homes since the 1980s to a rise in the number of families on social housing waiting lists to similar levels.
Social housing chart
Under Starmer, Labour had already pledged £39bn to social and affordable homes and a target to build 1.5m new homes in total, but the government could struggle to hit this. Official figures show the last time more than 300,000 homes – or 1.5m over five years – were built in a single year in England was 1969. Back then almost half were affordable social homes built by councils.
Economists are however clear that greater transport investment and housing provision would have significant benefits, by helping to support labour mobility and productivity.
Fiscal rule
The biggest challenge for Burnham, as for previous prime ministers, will be how to pay for his plans. The role of his chancellor will also be crucial, with Shabana Mahmood, the home secretary, tipped to secure the role over Ed Miliband.
Government borrowing chart
Sending a clear signal to jittery bond investors, Burnham last month said his policy agenda would be “backed with sound public finances and the discipline of our current fiscal rules”.
Retaining the self-imposed borrowing and debt constraints drawn up by Rachel Reeves will limit his options, but are seen as key to avoiding a market backlash that could risk further driving up the UK’s already £100bn a year bill for servicing the national debt.
Reeves had put the UK on a faster path to cutting its annual borrowing levels than other G7 economies. However, with spending pressures looming, and febrile conditions in financial markets worldwide, the UK’s borrowing costs remain elevated.
