Andy Burnham is preparing to replace Keir Starmer as prime minister against a backdrop of elevated government borrowing, the highest national debt since the 1960s, and persistent cost of living strain on households, according to analysis published by the Guardian.
Writing for Guardian Money, economics correspondent Richard Partington outlines the structural and near-term economic challenges that Burnham, currently the Makerfield MP, will inherit, while also noting some signs that conditions may be easing compared with the worst-case scenarios that were feared earlier this year.
Struggling with Andy Burnham economy challenges?
Get help with your situation today — confidential and no judgement.
The Scale of the Economic Inheritance
According to the Guardian, Burnham takes over at a moment when borrowing remains elevated and national debt stands at its highest point since the 1960s. Growth is described as weak, and the demands on public spending, covering defence, net zero commitments and the costs associated with an ageing population, are all rising simultaneously.
The article notes that Burnham has already committed to sticking to Labour's current fiscal rules under pressure from bond markets, a constraint that significantly limits his room for manoeuvre on spending from the outset.
Compounding the challenge, the Guardian reports that Keir Starmer's defence investment plan has left what the article describes as a "financial unexploded bomb", specifically £4.7bn over four years of unfunded spending, that Burnham will inherit on day one.
Iran War Fallout and the Fiscal Headroom Question
Much of the near-term economic uncertainty, according to the Guardian's reporting, has been driven by the US-Israeli war on Iran. At the peak of hostilities, analysts feared UK inflation could rise to 4.5% and GDP growth could fall to around 0.7% this year.
However, the global oil price has since pulled back, dipping to $72 a barrel, returning to levels seen before the war broke out, amid hopes that a ceasefire may hold. Some analysts, the Guardian reports, now forecast the oil price could fall to $60 by the end of the year, though the situation remains volatile.
Against that more optimistic backdrop, analysts at Capital Economics now estimate inflation could come in closer to 3.5% and GDP growth at around 1%, both significantly better than the worst-case figures. The same analysts expect the Bank of England could cut interest rates from 3.75% to 3% next year.
The question of fiscal headroom has also shifted materially. As recently as May, analysts at Bank of America had estimated that the £23.6bn of headroom Rachel Reeves left against the main fiscal rule in the spring had been reduced by approximately £10bn as a result of the Iran war. More recently, Bank of America revised that estimate down to a hit of around £4.6bn, with other analysts predicting little or no lasting impact at all.
Spending Ambitions vs Tight Constraints
The Guardian reports that Burnham has made a council housebuilding boom central to his vision, alongside higher spending on infrastructure and what he has described as "breathing space" cost of living support. The article makes clear, however, that these ambitions will not come cheaply.
Given the tight state of the public finances, the Guardian notes that a Burnham government would probably need to look at tax increases. Yet Burnham has also committed to Labour's 2024 manifesto promise not to raise taxes on work, which the article notes are among the biggest revenue-raisers available to any government.
The Guardian describes a "lively debate" within Burnham's camp over the right balance between caution and radicalism, and the appropriate timing of any cost of living package. One figure described as close to the prime minister-in-waiting is quoted asking: "If you do it in autumn can you accelerate the process in some way? Can you bring it forward a little bit?"
Insiders cited by the Guardian say there is a desire to avoid a repeat of the lengthy period of tax speculation that followed Labour's July 2024 landslide, before Rachel Reeves delivered her first budget four months later.
Cost of Living: The Unavoidable Political Issue
Some of Burnham's advisers are reported to be warning against launching what the Guardian describes as a "kneejerk package of populist cost of living measures", citing concerns about tight public finances and the potential impact of anti-business rhetoric on investment.
However, the Guardian's reporting makes clear that voters are expected to make cost of living the primary issue regardless. One insider is quoted directly: "You can't avoid the No 1 issue. You have to try."
The article also notes that polling indicates an "economic populist" approach would help Labour retain its majority in a fight against Reform UK, adding a political dimension to what is already a significant economic balancing act.
Historical Context: Timing and Luck in British Politics
The Guardian frames Burnham's economic inheritance within a longer historical sweep. Tony Blair, the article notes, benefited from what it describes as "goldilocks economic conditions" and a weak opposition when he took office. Harold Wilson, by contrast, faced a global energy crisis in the 1970s, a challenge that the Guardian notes has also confronted the last four occupants of Number 10.
The article concludes that while there are signs conditions may improve, Burnham will need more than luck to address the long-term structural problems facing the UK economy. The capacity for unexpected shocks remains high, particularly given ongoing geopolitical turbulence, and voters, the Guardian observes, are unlikely to thank any government simply for avoiding the worst-case scenario when times remain hard.
Free, impartial debt advice is available from StepChange, MoneyHelper and Citizens Advice.