When Andy Burnham stood before the Labour conference and declared he would preside over “the most significant change moment in our politics for 40 years,” the rhetoric marked a clean break from the Keir Starmer era. His communication style, his political instincts and his willingness to court the cameras are unmistakably his own. But the man who returned to Westminster as Prime Minister now finds himself staring down an autumn that looks uncomfortably familiar.
With the Chancellor, John Healey, at his side, Burnham is preparing for an early budget in late October, and the economic landscape has darkened since the pair took office. Promises made in the heady weeks of the leadership campaign and in the early days of his premiership are now colliding with gilt market pressure, stubborn inflation and a war in Iran that has pushed up borrowing costs for servicing the national debt.
Here is the state of play as the new team walks the tightrope.
Walking the Treasury Tightrope
The single greatest fear surrounding a Burnham premiership, at least among those in the City and in Labour’s more cautious corners, was that the bond markets would take fright and Britain would be dragged into a Liz Truss-style meltdown. Starmer’s allies were fond of stoking that anxiety, and there were moments when it looked like a self-fulfilling prophecy, not least when gilt yields climbed after Burnham remarked, in a television interview last year, that the government was “in hock to the bond markets.”
He has since moved to reassure the markets. The Prime Minister has publicly committed to Rachel Reeves’s fiscal rules on debt and borrowing, the same framework that kept the Treasury disciplined through the Starmer years. He has, however, made clear he intends to use “any flexibility within them” to borrow for investment, a careful formulation that gives him some running room without breaking the rules outright.
It is a delicate balance, and the Iran war has not made it any easier. With the Strait of Hormuz still closed, growth is sluggish and inflation is creeping upwards, putting pressure on the £23.6bn of headroom Reeves left in her final budget. Treasury insiders suggest the hit will not be as severe as initially feared, but “less bad than feared” is hardly a victory lap for a new administration.
The Tax Conundrum
Burnham has bound himself to the manifesto, which rules out increases to income tax, national insurance and VAT. In an interview earlier this week, he warned the public they needed to be “realistic” about what the Treasury could afford, language that did not go unnoticed by those watching for signals of an autumn raid.
The constraint has businesses on edge. With personal taxation off the table, the suspicion is that the Chancellor will reach for revenue elsewhere, perhaps through wealth taxes, which leftwing voices and union leaders have been pressing for. Burnham, however, has been firm. In an interview with the Financial Times this week, he made clear he was loth to pile costs on those he described as “wealth creators.” Each statement narrows the options.
The Prime Minister had once hinted at unfreezing the personal allowance, effectively a tax cut, but has cooled on the idea in recent weeks, mindful of the cost. Healey, by all accounts, will have very little room to manoeuvre when he stands at the despatch box.
Defence Spending and the Hole in the Plan
Perhaps the most politically poisonous item on the autumn agenda is defence. The Treasury confirmed on Friday that it would not, after all, set a date in this budget for reaching the 3% of GDP spending target, kicking the decision into next year’s spending review.
The delay is telling. Burnham would have needed to find an additional £4.7bn over five years just to honour commitments made by Starmer, who announced £15bn in extra defence spending when he published the defence investment plan, without ever identifying where the cash would come from. A further £10.3bn will also have to be raised by “reallocating budget” from across Whitehall, a phrase that will cause sleepless nights in every other department.
The irony is sharp. Healey resigned as Defence Secretary in June under Starmer, accusing the then Prime Minister of being “unable” and the Treasury of being “unwilling” to “commit the resources that the nation needs to defend the country.” He now occupies the Treasury himself, and the unflattering arithmetic has not changed.
Labour has committed to 3.5% of GDP on defence by the middle of the next decade. With the Iran conflict still unresolved and pressure from Washington and NATO to go further and faster, the squeeze on domestic budgets will only intensify.
Cost of Living and a Contingency Plan
Burnham has been quick to act on the cost of living. His early intervention, a VAT cut on energy bills, was a crowd-pleaser, though it came with strings attached. The funding was drawn from cuts to existing programmes, including the controversial digital ID scheme, which, as the former minister Darren Jones pointed out, was never properly costed in the first place.
Healey has suggested there are no further plans to offer energy support at this October price cap, despite energy prices having risen by 4%, a move that has effectively wiped out the impact of the VAT cut for many households. The Treasury is understood to be drawing up a contingency plan in case help is needed in January, likely a targeted scheme for vulnerable households. The Resolution Foundation has estimated that even a narrow scheme for those earning under £25,000 would cost in the region of £2bn.
For a Chancellor with £23.6bn of headroom and a war-driven borrowing bill, that is a significant sum.
Public Control and the Thames Water Question
Burnham made one of his most distinctive pledges during the leadership campaign: that he would place life’s essentials “back under public control,” with Thames Water at the top of the list. In June, he told this paper he favoured public ownership of the stricken utility, which is buckling under £20bn of debt.
The first real test of that commitment will come with the forthcoming water bill, which could be used to amend the terms of the special administration regime. Even then, the path is littered with legal risk. Burnham has recently softened his language, telling the Financial Times that he had chosen to speak of “public control” rather than nationalisation. The autumn budget will be his first opportunity to set out a direction of travel that goes beyond local control of bus routes. The water industry, and the markets, will be watching closely.
Welfare: The Problem Pushed to the New Year
Two major welfare reviews are due back this autumn. The second part of the Timms review will look at a new system for delivering personal independence payments to disabled people, a bill that is rising rapidly. The Milburn review of youth unemployment and inactivity is also expected, and will likely demand significant spending to tackle what is, by the Treasury’s own reckoning, a structural crisis costing the economy £125bn a year.
Both reviews are politically explosive and both carry the risk of a backbench revolt from Labour MPs nervous about cuts to vulnerable groups. According to the Telegraph, Burnham is likely to push welfare reform into the new year at the earliest, an acknowledgement that the budget simply cannot bear the strain.
Why it Matters
The autumn budget will be the first real accounting of the Burnham-Healey project, and the numbers, not the speeches, will define it. The Prime Minister came to power promising transformation, but he has inherited a fiscal rulebook, a manifesto and a war he did not choose, and each of them is pulling him in a different direction. With defence demands rising, a cost of living crisis that has already wiped out his flagship intervention, and welfare reform waiting in the wings, the room for the “significant change moment” he promised is shrinking by the week. The bond markets have been placated, for now, but the political markets are far less forgiving.