Andy Burnham delivered his first address to the House of Commons as prime minister, promising significant economic reform amid mounting inflation and financial pressures. Speaking on September 2, Burnham acknowledged that “Britain is not where any of us would wish it to be” and described the cost of living as “too expensive and too hard for too many.” He pledged to overhaul the economy with the aim of restoring hope and improving conditions across the country.
Despite repeated questioning, Burnham declined to confirm whether his upcoming budget, scheduled for October 28, would include tax increases. Economists warn that rising inflation, coupled with the conflict in the Middle East, has nearly halved the government’s £24 billion fiscal headroom—a financial buffer intended to protect against economic shocks. This reduction comes as the government faces increased spending demands, including planned rises in defence expenditure and measures to ease the cost of living for households.
The geopolitical situation has also contributed to economic uncertainty. Oil prices climbed following recent US military strikes against Iran, which came in retaliation for Tehran’s targeting of US forces and commercial vessels in the Strait of Hormuz. The escalation pushed the cost of government borrowing to its highest level in 18 years. Observers note that bond markets worldwide, including in Japan, Germany, France, and the United States, experienced broad sell-offs, adding to financial market volatility.
Burnham attributed many of the United Kingdom’s current economic challenges to a combination of long-term factors. He cited the legacy of former Prime Minister Margaret Thatcher’s policies, austerity measures that have diminished local councils’ capacity to act, and the economic impact of Brexit, which he said contributed to a decade of low growth and stalled regeneration. “Political power was centralised, economic power privatised, and the country deindustrialised,” he said. “Change begins with honesty, and I’m not hearing much of it this afternoon. Unless we are blunt about what went wrong, we won’t turn things around.”
The prime minister outlined plans to increase state control over utilities such as water and energy and promised to pursue fundamental devolution of powers from Whitehall to local authorities. On defence, Burnham indicated an intention to raise spending to 3 percent of GDP by 2030, an increase equivalent to approximately £10 billion annually. His appointment of John Healey as chancellor was highlighted as aligning with these priorities; Healey previously resigned as defence secretary under Labor leader Sir Keir Starmer over disagreements on military funding.
Financial market experts suggest that rising borrowing costs are likely to limit the government’s fiscal flexibility and make tax rises difficult to avoid. Tom Watts, a portfolio manager at Julius Baer, commented that the surge in natural gas prices and subsequent rise in gilt yields will constrain the government’s room for manoeuvre ahead of the forthcoming budget.
As Burnham’s government prepares for its next fiscal plans, the interplay of international tensions, domestic economic challenges, and political priorities will shape the trajectory of the UK’s economic recovery.