Andy Burnham's ascent to the premiership marks a pivotal moment for the UK, especially as the nation grapples with a series of global economic shocks and a prolonged stagnation in living standards. His promise to deliver 'good growth in every postcode' is an ambitious one, and the path to achieving this is fraught with challenges. This article delves into Burnham's economic to-do list, exploring the complexities and potential pitfalls of each initiative, while offering a critical perspective on the challenges ahead.
Reindustrialisation: A Complex Journey
Burnham's commitment to reindustrialisation is a bold move, aiming to bolster manufacturing in critical sectors like steel, defence, energy, food, and farming. However, the UK's industrial base has dwindled significantly, from 30% of the economy in 1979 to a mere 10% today. The challenge lies not only in reviving manufacturing but also in navigating the geopolitical tensions that have led to a growing focus on domestic production in rich countries. While the old manufacturing heartlands still hold pockets of strength, the UK's comparative advantages often lie in the service sector. The fetishisation of the industrial past may not be the key to modern economic prosperity, and the high energy costs coupled with competition from low-cost manufacturing hubs in Asia pose significant headwinds.
Manchester's economic revival, a cornerstone of Burnham's philosophy, has been driven by private investment in knowledge-intensive business services, not the reopening of cotton mills. This raises questions about the feasibility of a similar approach in other regions. The success of reindustrialisation will depend on a nuanced understanding of regional strengths and the ability to adapt strategies to local contexts.
Devolution: A Double-Edged Sword
Devolution is a powerful tool for addressing regional disparities, and the OECD has endorsed it as a means to boost the UK economy. By empowering regional leaders and aligning skills policy, infrastructure, innovation, finance, and governance, devolution can drive up the output of underperforming regions. However, the devil is in the details. While devolution allows for tailored responses to local issues, it may also create inefficiencies. Financial firepower is essential for its success, and local government, having endured deep cuts, may struggle to implement changes effectively.
The establishment of a new hub for No 10 in the north, based in Manchester, is a significant step towards decentralisation. However, the success of devolution hinges on a coherent approach that addresses the interconnected factors influencing regional growth. The challenge lies in creating a balanced and sustainable model that maximises the benefits of devolution while minimising potential drawbacks.
Cost of Living: A Burning Issue
The cost of living crisis is a pressing concern, and Burnham has promised to provide 'breathing space' to families struggling with soaring costs. The energy price shocks from the wars in Ukraine and the Middle East have driven inflation above the Bank of England's target for five years. Real wage growth has stagnated, and household incomes have fallen for the first time in modern history. The Iran war, elevated Bank of England interest rates, and the cost of living crisis have collectively weighed on the economy, hitting hiring confidence and exacerbating youth unemployment.
While the July increase in the Ofgem energy price cap was smaller than after the Russian invasion of Ukraine, prices remain significantly higher than before the Covid pandemic. Burnham's approach to the cost of living crisis will need to be both radical and pragmatic. Options like an affordable energy guarantee, rent controls, cheap bus fares, and an expansion in free school meals could provide immediate relief, but the long-term sustainability of these measures must be carefully considered.
Youth Unemployment: A Looming Crisis
Youth unemployment has risen to alarming levels, with young people bearing the brunt of the economic downturn. The Iran war, elevated Bank of England interest rates, and the cost of living crisis have collectively hit hiring confidence. However, the longer-term shift in youth employment is a more profound concern. Rising mental ill-health, the impact of social media, and AI disruption are contributing to a crisis that has seen the number of young people not in employment, education, or training rise above a million for the first time in a decade. Burnham's response will need to address both immediate and long-term challenges, with a focus on strengthening technical education and the apprenticeship system.
Defence Spending: A Delicate Balance
Burnham faces the challenge of finding an extra £4.7bn over five years for defence in his first budget, following Keir Starmer's announcement of £15bn in military funding. The Treasury plans to raise £10.3bn by reallocating budgets from across government departments. The long-term commitment to spending 3.5% of GDP on defence by the middle of the next decade is ambitious, given the tight constraints on public finances and the need to fund public services and welfare spending. The Office for Budget Responsibility has warned of an 'unsustainable' trajectory, and Burnham's ability to balance defence spending with other priorities will be a key test of his leadership.
Social Housing: A Housing Crisis in the Making
Burnham has pledged to oversee the biggest council house-building programme since the postwar period, aiming to address the loss of almost 1.5m council homes since the 1980s. Labour has already pledged £39bn to social and affordable homes and a target to build 1.5m new homes. However, the government may struggle to hit this target, given the historical challenges of building more than 300,000 homes in a single year. Economists argue that greater transport investment and housing provision would significantly benefit labour mobility and productivity, but the path to achieving these goals is fraught with obstacles.
Fiscal Rule: A Delicate Balance
The biggest challenge for Burnham, as for previous prime ministers, is how to pay for his plans. The role of the chancellor, with Shabana Mahmood tipped to secure the role, will be crucial. Burnham's commitment to 'sound public finances and the discipline of our current fiscal rules' sends a clear signal to bond investors. However, the self-imposed borrowing and debt constraints drawn up by Rachel Reeves limit his options, and the need to avoid a market backlash adds complexity. The UK's borrowing costs remain elevated, and the path to cutting annual borrowing levels faster than other G7 economies is fraught with challenges.
In conclusion, Andy Burnham's economic to-do list is a challenging one, and the success of his initiatives will depend on a nuanced understanding of regional strengths, a pragmatic approach to the cost of living crisis, a balanced defence spending strategy, and a careful navigation of fiscal rules. The UK's economic future hinges on Burnham's ability to address these challenges while delivering on his promise of 'good growth in every postcode'.
