In office for just over six weeks, no major domestic crisis derailed his plans over the summer, Reform has been on the back foot, and he arrived back at Westminster with his personal approval ratings soaring and optimism undampened. But underneath the sense of relief that many Labour MPs are feeling that their high-stakes gamble of ousting Keir Starmer appears – for now – to have paid off, there is an unease that Burnham’s premiership is yet to make contact with economic reality. In their early weeks in office, his team were able to point to some inherited green shoots: below-forecast inflation figures, sustained growth, signs that sluggish productivity could be starting to turn around.
All despite the economic turmoil unleashed by the Iran conflict. This week, all that changed. With the end of summer recess came a global bond sell-off amid anxiety over oil prices, sticky inflation and pressure to ramp up defence spending, which pushed government borrowing costs to their highest since the 2008 financial crash.
It makes the backdrop to John Healey’s first budget as chancellor a difficult one. Economists reckon about half of the £24bn fiscal breathing space his predecessor Rachel Reeves had built up at her spring forecast has since been wiped out by higher inflation and interest rates, severely limiting Healey’s room for manoeuvre. Among the more experienced hands in government, there is a firm view that the new administration cannot return to the days of slim headroom given Reeves’s experience last year, which led to more brutal proposed welfare cuts and ultimately a backbench rebellion last summer.
Healey has just returned from the G20 finance ministers’ meeting in North Carolina and is acutely conscious of factors beyond his control that will hit the Office for Budget Responsibility’s forecasts, including the rising cost of oil after bombing resumed in Iran. It is little surprise, then, that he has repeatedly stressed that fiscal responsibility is the “bedrock” of his approach and he will stick to Reeves’s fiscal rules. But his cautious tone jars uncomfortably with the prime minister’s large – and costly – policy vision: more public control of utilities, reform of the broken social care system and a mass social home building programme.
In a mammoth three-and-a-half-hour Commons session on Tuesday, he repeatedly promised to deliver the “much more substantial change” the country was crying out for. Among Burnham’s closest allies, there have been some mutterings that Healey could, like chancellors before him, be in danger of being “captured” by the Treasury and its more orthodox arguments. The friction between the two operations burst into the open last week when Healey suggested in a television interview that Burnham was running a “continuity” government.
No 10 insiders pushed back hard. Mandala Partners, a global economic research consultancy that was led by Nick Williams – a former Downing Street economic adviser who is now working for the first secretary, Louise Haigh – found that housing, transport and health devolution would be crucial to achieving the prime minister’s aim of “growth in every postcode”. Of these, the impact of following Manchester’s housing investment model is most striking.
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