Why Burnham needs Reeves Burnomics isn't sustainable

British politics has become a bloodsport. In the coming months, the nation’s future will be defined by two political contests: a by-election in Makerfield followed by a Labour Party leadership contest. The by-election will be the harder task for leadership hopeful Andy Burnham. With so much at stake, it’s hard to focus on anything other than politics. Yet the story of Britain’s economy will ultimately prove more important — and bloodier too.

This story does not start with the bond market, though it might end there, as it did for Liz Truss. The lesson of her short premiership is that when you walk through the doors of No. 10 for the first time as prime minister, you’d better be prepared and have a fully worked-out strategy. Keir Starmer and Rachel Reeves had a strategy. It wasn’t a great one, but they’d had time to develop it in Opposition. What they lacked was a plan B, ready to unroll when the external environment began to deteriorate.

Right now, Burnham is as unprepared as Truss. He has strong views about the economy, but he has not had time to develop a coherent strategy. A strategy is something you draw up, stress-test, gather opinion on, fine-tune, cost, and sell. This takes years. Burnham has not even started. Nor will he start any time soon because he will be fully focused on his campaign.

Compare this with the extraordinary time and effort Tony Blair and Gordon Brown invested in developing their economic strategy ahead of the 1997 election, or with Margaret Thatcher’s effort in the late Seventies. The economic success of the UK in the Eighties and early 2000s was built on hard work and hard thinking. Brown was probably the most formidable chancellor the UK has had in living memory, precisely because he did the maths himself.

During the global financial crisis, something profound happened to the British economy, from which it never recovered. The rate of productivity growth slumped. Until then, the UK economic model had relied critically on the City of London. Finance was the gift that kept on giving. When that ended, financial regulation became stricter. Lending practices became more restrictive. Profit margins fell. A stream turned into a trickle. 

The UK has had seven prime ministers since Blair, but none of them has addressed the problem of low productivity growth. The economy bumbled along, but political disenchantment built up over the years, as became clear during the Brexit vote in 2016.

After the Brexit referendum, I went through the UK’s economic statistics to see why people were so dissatisfied with the status quo. At first, I could not find anything in the official macroeconomic data; but eventually I did. It was an obscure statistic, published by the Department for Work and Pensions, on net disposable income, adjusted for inflation, and after housing costs. Essentially, this is what your wage buys after you have paid your taxes, your rent or mortgage. The lowest and the highest income groups did well in the period from 2007 until 2016. But the ones in the middle did really badly. That’s the median voter, the income group behind most electoral swings.

I recently looked at that same statistic again, now updated to 2025. The situation today is even more dramatic. While everyone above the average did moderately well, the incomes of households with lower and average income did really badly. The worst relative performer was the group that was just below the median income — technically the fourth decile in the income distribution. Their net income after housing costs was £23,500 in 2000. It was exactly the same last year: there had been no change. I would not be surprised if many of them were Reform voters.

There is an interesting quirk in these statistics: the situation was much, much worse in 2024, the year when Starmer was elected. During the first year of his government, the low-middle-income group saw a rise in net disposable income after housing costs by 5%. Given the context, this is as good as it gets. We don’t know what happened in Starmer’s second year because the data hasn’t yet been released. But as of now the Prime Minister can make a credible case that for low to medium income groups, the situation is improving. 

Brexit and the rise of the Reform party did not come out of the blue. Political dissatisfaction builds up over time. What made the politics of Britain’s post-2008 structural slump so much worse were unforced economic policies errors, such as quantitative easing, fiscal austerity, and Rishi Sunak’s excessive stimulus during the Covid years. The triple lock that keeps pensions rising at the minimum of inflation, average earnings, or 2.5%, is an inflationary Doomsday machine. When you have a price shock as bad as that which followed the Covid years, the last thing you want is to perpetuate pension increases.

At its heart, this is a macroeconomic policy crisis. Yet that doesn’t mean you have to revert to Thatcherism to solve it. There exist, in theory, plausible strategies on the Left. But they don’t exist in the Labour Party right now. 

What Burnham calls “Manchesterism” is the least plausible of all. Maybe we should call it Burnomics. This is basically the idea that what worked so well for Manchester will work for the UK. It is the very definition of a fallacy of composition: the generalisation from a single example to the whole, from a city to a country. There’s a saying in America that all politics is local. That statement is true to a surprising extent, but it does not work the other way round. The main difference between a country and a large city is not size. It is macroeconomics: cities don’t have currencies, and they certainly don’t have bond markets. Becoming acquainted with the latter will be an entirely new experience for Burnham. 

The one substantial point on which Burnham differs from Starmer and Reeves is his idea of more flexible fiscal rules. This will be the test. In fiscal policy, “flexible” is always a euphemism for a higher debt. 

There are good and bad fiscal rules. The UK’s fiscal rules in the past were better than most. The EU’s system of fiscal rules, by contrast, has never really worked. The reason you need rules is to guide expectations, especially those of the bond markets. 

Burnham said last year that the UK needed “to get beyond this thing of being in hock to the bond markets”. You never heard that from Reeves. One of Burnham’s supporters, Paula Barker, Labour MP for Liverpool Wavertree, told Times Radio last week that once Burnham comes to power, “the markets will have to fall into line”, insisting that investors would be impressed by the new leader’s progressive policies.

It would be interesting to watch, albeit from a safe distance, what would happen if Barker’s proposition was put to a test. The bond markets are not political activists. They trade on available information. Contrary to rumours, they don’t always favour austerity. Bond investors were, for example, sceptical about Javier Milei’s fiscal shock therapy in Argentina because they did not think that it would be politically sustainable. 

If Burnham ended up raising Britain’s taxes and incurring a higher deficit to fund programmes of public spending, the bond markets would almost surely question the sustainability of his strategy. They care about the economic programme as a whole, not just the deficit itself. And Manchesterism is not a coherent package: it is a bunch of disconnected, virtue-signalling, progressive slogans. 

Reeves started by capping the deficit by following her fiscal rules and then worked out taxes and spending from there. When she did this, the Government invariably hit spending limits. It is possible to do it the other way round — letting the deficit fall where it may — and to succeed. But you would need to persuade a lot of people in business and in the bond markets that you have a viable growth strategy. Judging by the comments made by Barker, and by Burnham himself, that process has not even started.

If Burnham were to become prime minister, he would be the most unprepared premier since Truss. The smartest thing he can do in this situation is to betray his followers, double down on Starmer’s policies, and keep Reeves as his chancellor. That way, he would get the bond market vigilantes off his back. His supporters would hate it, but what can they do? Surely they’re not going to have another leadership contest?

There are worse scenarios. Like Truss, Burnham might pick the wrong advisers. He might want to let rip. He has got three years ahead of him, with a whopping parliamentary majority. That might be tempting. And that’s where our story ends: with the bond markets. 

---