Labour's dilemma: is Burnham's economic agenda doomed?

Andy Burnham will be Britain's next Prime Minister. His supporters see him as Labour's saviour – authentic, popular and connected to ordinary voters in a way that Starmer just isn't. But I think there's a problem. The very people cheering him on are also leading him straight into a trap. Because wherever Burnham goes, he hears demands for more spending, more support, more intervention, more government. There are positive stories of people who have met Andy Burnham. Like Irene, who went to Burnham about her son. He had 18 things wrong with him. From rheumatoid arthritis, fibromyalgia, crockingbone spindles in his eyes. So when he went to see Andy Burnham about that, what did he do? I gave him all the paperwork and everything else. He couldn't even bloody walk, let's use the language. He picked the phone up. He said that you better sort something out within the next three days and put the phone down. And within a couple of days, I've got all the paperwork at home. He got the pip and they gave him the top rate. What do you think of Andy Burnham having dealt with him over that? He was brilliant. Absolutely 10 out of 10. Well, 12 out of 10 if you want. So today I'm asking, can Britain actually afford the Burnham agenda? Hello and welcome to Reality Check. I'm Michael Simmons, The Spectator's economics editor. I want to start with a warning from recent history. Think about the relationship between vote share and seat share at British general elections. Look at 2024. Labour won just 34% of the vote and fewer votes than Corbyn managed in 2017. Thanks to the electoral system, that translated into nearly two thirds of seats. That's one of the biggest parliamentary majorities in modern British history. So the lesson? Huge majority of seats don't necessarily mean broad support. Many Labour MPs entered government believing the public had overwhelmingly endorsed their programme, their ideas. But in reality, most of the voters had backed someone else. Yet with a massive commons majority came an arrogance that Starmer could solve Britain's problems simply with more spending, more regulation, more state intervention and by just getting rid of those evil Tories. But two years later, Labour's popularity has collapsed. And I'm worried that Burnham is going to make the same mistakes again. Because his diagnosis is that Britain hasn't had enough government. It hasn't had enough intervention. There isn't enough public ownership, not enough state activism. In other words, a larger state has never been tried. His allies want council house building, more social care, utility nationalisation, large industrial policy. A larger state, a larger government across the economy. But none of them have a plan to pay for it. And I think that's where the numbers get quite uncomfortable. Rachel Reeves, who Burnham wants to sack, leaves a frightening inheritance too. Her plans for tax and spend involve spending increases now that have to be paid for for tax rises towards the next election. Will Burnham even want to deliver that, yet alone be able to? And tax and borrowing at the same time is becoming the cost of living. Look at the average household. They currently contribute around £11,500 a year in income tax. And official projections suggest that figure will exceed £14,000 by the end of this decade. And that's on current plans. That's before Burnham's supporters get their shopping list. And so here's the reality that Burnham's avoiding. Britain isn't a rich country temporarily having a bad decade. We're a poorer country that still thinks we're rich. Economic growth has been weak for years. Productivity growth has stalled completely. Living standards have barely moved. And yet the demands on the state keep growing. We've got an ageing population. We've got sky-high welfare costs, rising healthcare and growing demands on defence spending. That's before you even get to the rapidly increasing debt interest payments. I think we're having to run faster just to stand still. Which is why Burnham faces a dilemma. If he wants to spend significantly more, he's only really got three options. He can raise taxes further. He can borrow more. Or he can abandon the fiscal rules. None of those choices are painless. And in fact, I'd argue some are totally impossible. But his allies insist he gets it. But does he? He may inherit a large parliamentary majority. He may inherit a country desperate for change. But he inherits something else too. An economy with too weak economic growth. A population that's already been taxed to near breaking point. Rising borrowing costs and spending commitments that are already stretching the public finances. And the danger for Burnham is that he's already promised too much. And in modern Britain, that's often where the political trouble begins. Anyway, enough from me. Joining me to discuss that is our Director of Research, John O'Neill. John, welcome to Reality Check. Delighted to be here, thank you. What did you make of that? Can Britain afford Burnham? Well, I'm not sure it can because he's already started boxing himself in. He said he'll keep the triple lock. He'll keep the manifesto tax pledges. And we've already had one big round of tax rises from Rachel Reeves. Two. We might be set for more tax rises just to stick to the fiscal rules, which Andy said he'll, or is supposed to say that he'll stick to as well. In the autumn. That doesn't leave much money for anything else. This episode of Reality Check is sponsored by Artemis Fund Managers. When it comes to investing in financial markets, you've got a choice. You can follow the crowd and buy an index tracker fund, which simply follows an index like the FTSE 100, for instance. That means you get all the companies in it, the strong performers and the weaker ones too. This is called passive investing. Or you could invest with an active manager like Artemis. Active managers use their skills and experience to actively identify the companies that they think are going to perform best and avoid the ones that they think will underperform. Or to use Artemis's phraseology, actively hunt down healthy profits. Artemis, the profit hunter. Be a hunter, not a tracker. As with all investments, your capital is at risk. Since you've been following the numbers and the stats during Keir Starmer's premiership, is there one number or data point that jumps out to you that kind of visualises or identifies how it went so wrong? Well, I think I'd be difficult to choose two. Okay, you could have two. Those two are his election, when he had one of the most disproportionate elections ever. Yeah. So he won, I think, 34% of the vote and got 63% of the seats in the House of Commons. And Labour's vote share went up by, I think, 1.6 percentage points. Right. Basically, it didn't go up very much. And he got fewer votes than Corbyn, right? He did, about four million less than Corbyn in 2017, I think. And although his share of the vote went up so little, the number of seats he had more than doubled. And that showed that his support was… Quite thin. Yeah, it was not deep. So it could evaporate very quickly. And that's what happened. And the other one, I'd say, is the difference between what Labour promised or didn't promise in their manifesto, and then what they ended up doing. So it's not a surprise that Labour came in and raised taxes, but they'd had a really, really thin manifesto, where they said they would raise taxes and spending by about 10 billion each. Yeah. And in fact, they came in, they raised spending by about 80 billion pounds a year, a few years out, and taxes by 40 billion. Yeah. So the manifesto is very thin, and they had a huge gap between what they promised and then what they did when they came in. And they just didn't really have a story about that. The Tories in 2010, they raised taxes a lot more than their manifesto suggested, but they told a really strong story about, we're going to deliver austerity. And I think people knew what they were doing, and they sold it. Keir Starmer just didn't have that story, because apparently he didn't have that kind of interest. Yeah. What he was doing, and I think that's what did for him. Yeah. That is really stark, the difference between this vote sharing, because we have this multi-party system now. Yeah, we could be seeing a lot more of that. Yeah, how many seats that can get you on a much smaller share of the vote. How out of step is that with historical elections? We showed a graph of this earlier on in the episode, but just remind viewers, I mean, how unusual is that as an election result? Yeah, well, say in 1997, I think Tony Blair got 43% of the vote, and he got the same percentage of the seats, just under a third. So that's almost 10% more of the vote than Starmer got. So yeah, it's a big gap. It's much bigger. And John, something I wanted to ask you as well is, obviously we're talking about Rachel Reeves, but all the suggestions seems to be that although she's backed Burnham, I think he said that he doesn't want to have Rachel Reeves as his chancellor, and that's because she's so unpopular. I think I'm right in saying that she's the least popular chancellor we've ever had. That's very easy to believe. So if it's not going to be Rachel Reeves, who do you think might the other runners and riders be? Well, we've heard Ed Miliband, and I think there were stories today saying that he's been ruled out, and that he's formulating Burnham's economic policy, so we still don't know about him. There's Wes Streeting, who's more centrist, but then he did start his campaign for the leadership by calling for a wealth tax that works, hiking the rate of capital gains tax. Is there such a thing as a wealth tax that works? I think we might be about to find out. Yvette Cooper, who's an economist and might reassure markets. She seems a bit more centrist, I think, than some of the other candidates. And then there's Shabana Mahmood, but would you want to move her from the Home Office when she's taking the flak for policies that I think might be quite popular with the general public and less popular with Labour members about restricting immigration? Yeah, I think I've heard similar. One interesting suggestion that I mentioned in the column is that Miliband, if he doesn't get number 11, he might end up in housing, where there's this plan to potentially nationalise a house builder so that we can have a national housing service. I mean, that's one of the things that Burnham's said before, that he wants some sort of human right to housing. So I'm sure that will end well. But I mean, either way, we'll both be excited to see, I'm sure, who the new chancellor is. Very much. Now, I wrote a column in the magazine this week about Burnham's political economy. And in that, we talk about some of the advisors or some of the people in the economic left of the Labour Party who are vying for his ear. But viewers and listeners, I'll make another confession, is that John did a lot of the deep reading and research for that, going through these past books and things that these potential advisors have said. What's the maddest stuff that you found? Well, I think, as you mentioned in your piece, Neil Lawson from Compass kind of likened economic growth to cancer. He was quoting Margaret Hodge saying that. I mean, I think that's pretty obviously what he thought, which I think most other people would say we want more of it rather than we want to cut it out and stop it. Then there's Matthew Lawrence, who founded the Think Tank Commonwealth, and he recently wrote a paper on Manchesterism, trying to define it a bit, for Burnham. And he's written two... The paper on Manchesterism, I thought was... It kind of sounds quite business-friendly. And I think that's showing a different side to him. But he's also co-written two books, which were Owning the Future and Planet on Fire. And those are much more extreme. They're basically saying the climate crisis means everything's going wrong, and he wants to change the entire nature of ownership in the economy. So if you think you own those shares, sorry, in fact, you'd rather your company was a cooperative and other stakeholders like people who work there or the government decide. So that, yeah, I think... He thinks growing trees needs to come before growing GDP. I'm paraphrasing, but something like that. And it's important to say that people around Burnham, and they were saying this before we went to press, and they've said it again, now that we've gone to press and the magazine is out there, that although these are friends of Burnham, I think one of them played football with him in the demon eyes. Oh, yeah. Labour football team. They say, don't worry, we're not actually listening to these people. But do you think that's fair? I mean, they might not get jobs in a Burnham government, but they are his allies, and they're all these people vying for his ear. You're right. They're people he's been aligned with, but then he's made serious efforts to bring in other people. So he's brought in Jim O'Neill, the former Goldman Sachs banker, who was behind the Northern Powerhouse for George Osborne, and Richard Hughes, the OBR chair, and Andy Haldane, the former Bank of England economist. So he's obviously looking somewhere else. Now, whether that's to reassure the markets or where he's going to be taking his ideas from, we have to wait and see. Well, and it's really interesting that you bring up those people because it sounds like they're going to get, if not senior posts, they're certainly going to be listened to in a Burnham administration. And I think it's been reported that next week, he's going to give this sort of market reassuring speech where he's going to say, I'm going to stick to the fiscal rules. I'm going to get the debt down. I'm going to get the country growing. And whilst Jim O'Neill and Andy Haldane specifically might not physically be flanking him at that speech, maybe they will be, they're certainly, those names are being trotted out as these are the serious people we've listened to. However, when I was doing the piece, somebody that used to work in the treasury said to me that we should maybe be slightly wary of seeing these people as the more mainstream voices, because even though they clearly are less wacky and they've done serious jobs compared to some of the Labour left people that we talked about a moment ago, they all have one thing in common, this person in the treasury said to me, and that's that they're quite critical of Rachel Reeves' fiscal rules. So this person suggested to me fine, maybe he'll make this speech and maybe even in the first budget, whoever his chancellor is, whether that's Ed Miliband, Wes Streating-Shabana, we don't know, but whoever it is, they'll keep the fiscal rules then, but then they'll look to change them further on. And one of the changes that's been suggested or something they might do more on is something called Puffins, which are these sort of public financial bodies. And by using those, they argue, and I think Jim O'Neill specifically argues this, that you can increase borrowing in a way that doesn't make you fall foul of the fiscal rules. I wonder if you can explain how that would work. Well, that's because the fiscal rules as they are now are the stability rule, which is that the current budget has to be in balance. So that means that the government doesn't borrow to fund its day-to-day spending in a few years' time. And then there's the investment rule, which means debt or a kind of measure of debt called public sector net financial liabilities has to be falling as a share of GDP in a few years' time. And Rachel Reeves changed that measure of debt to enable these Puffins, the public financial institutions. So if the government gives money to institutions like the National Wealth Fund or the British Business Bank, then it can lend out that money. Now, measuring net wealth means when it lends out the money, it's owed some money and those things net off on the balance sheet. So they don't make a difference. Because it's got an asset as well as a liability. Exactly. Right. But presumably, you've explained there that Reeves already made this change. If it was a big solution that we're just waiting to be done, surely Reeves would have maxed out the potential from it already to get her out of various holes she's been in. Well, I think as you've said, you still have to borrow to fund this. The initial issues. So you still have to go to the guilt markets. Still needs more guilt. To borrow. Yeah. I'm personally quite negative about all this because I sort of think Burnham is just making this, and I said this at the start, Burnham's making this kind of same mistake where I feel like Starmer came in and a lot of Labour MPs just thought, oh, well, we just need to get rid of the evil Tories. And then once we got rid of the evil Tories, because we're nice and good people, Britain will right itself and everything will just suddenly start swimming along nicely. And Burnham is sort of making the same mistake, but it seems to be that he thinks, you know, there's just, there's too much privatisation, the state's too small, and I'll just sort that out and it'll be as simple as that. But I think that's, you know, such a fool's errand. And when that doesn't work, he's going to end up in the same position that Starmer ended up in, potentially even quicker. Chingham, too harsh? Uh, no, in a word. Fair enough. John, whether it's true or not, it certainly seems to be the kind of received wisdom now that what the British public want is sort of social conservatism on social policy with more left-wing economics, that, you know, that's what Labour voters seem to want anyway, it's what reform seem to be offering, although they seem to be kind of moving slightly away from that now. But that's kind of what Starmer tried to offer, right? And so what was your take on how did Starmer and Reeves and Labour generally become so unpopular on the economy? Well, I think we're having the same argument we've been having for a long time, which is how to split up a pie that isn't growing very much. Right. So the main problem is just that the economy isn't growing. If it was, then we could spend more money on the NHS. Yeah. We could have a bit of money to cut taxes, but we don't have that money. We're trying to grow the government and while the economy isn't getting any bigger. But then politicians kind of keep making the same point, or politicians that want to be in government and are trying to have that centre-left appeal are like, you know, don't worry, we're going to grow the state, we're going to do these nationalisations, we're going to improve public services. But given you've just explained that the money isn't there, do you think that they know the money isn't there and that we're not focusing enough on growth and they just don't care anyway? And they're saying these messages and then it's like, we'll deal with the consequences later. Or is there a genuine naivety and that Burnham, people like that, whoever it is after the next election are going to come into office and actually be surprised, even though the information was all there in the first place? I think they might be surprised because I think you always expect the growth to come back. Andy Burnham was an MP under Tony Blair when we enjoyed a long boom. And there was lots of money coming in to spend, so they could do all of these policies. It's kind of, obviously, the government can create an environment for growth where it happens, but it's hard to say that they make it happen. They might change the system so it can happen, but they don't directly make it happen. So I think you can expect it to happen. And then, unfortunately, you just don't do the things that makes it appear. Thanks, John, for joining Reality Check. And thank you at home for listening and watching. If you're joining us on YouTube, please don't forget to subscribe and tap the bell so that you never miss an episode. If you're listening on a podcast platform, give us a follow along there too. And for our weekly newsletter that goes out every Friday morning, and for our archive of episodes, just go to spectator.com forward slash reality check.