Can Prime Minister Burnham escape the shadow of Liz Truss?

Jonathan Edwards

Despite lasting only 49 days as Prime Minister, Liz Truss has left an everlasting shadow on the politics of the UK.

The very brief experiment in Brittania Unchained economics led by Chancellor Kwasi Kwarteng in his mini-Budget led to a run on the currency and panic amongst international investors in UK Government gilts.

Within days the Chancellor was sacked, quickly followed by a Prime Ministerial resignation.

I recall thinking at the time that it wasn’t only the fantasy economics of uncosted tax cuts, £45bn in the case of the mini-Budget, that would perish with Truss.

It would also make it far more difficult for those arguing from the left of the political spectrum that stringent fiscal rules and targets were also self-defeating, if there was no investment plan to deliver sustained economic growth.

And so it has transpired. Kwarteng was replaced by Jeremy Hunt, who re-introduced the Brown/Osborne orthodoxy of operating with firm ‘fiscal golden rules’, and it was no surprise to see Rachel Reeves also adopting the same approach with a few minor tweaks on entering 11 Downing Street.

I understand the conservative approach taken by the incoming Labour administration.

They didn’t want to open a front on spend and taxation during the election and therefore adopted the plans of the Tories to all intents and purposes. All economic projections were pointing towards an improving economic picture as well, which would have meant increased tax receipts and therefore greater headroom.

Regrettably for Labour, economic performance has been sub-optimal. Just as things were starting to perk up a bit at the beginning of this year, the US started a war in Iran which instantly stopped expectations of a loosening of monetary policy by the Bank of England.

Trumpflation therefore has led to the economic brakes being applied resulting in the self-imposed fiscal targets acting increasingly as a garrotte.

When future historians look back at another incredible week in UK politics and try to understand the downfall of Prime Minister Keir Starmer, they will focus on two primary interrelated causes.

Firstly, the continuing downward pressures on living standards which in turn fuel the populist politics of Reform and now Restore.

If Labour MPs weren’t petrified that they were going to lose their seats and the election, I wouldn’t be writing this article, and Mr Starmer would be safe in 10 Downing Street.

Andy Burnham’s victory in Makerfield provides a roadmap for Labour to win at the next general election, and that glimmer of hope was enough to drive the events of the last week.

It is interesting therefore that amongst all the speculation about what programme of government Mr Burnham is likely to implement, we know that it is his intention to maintain the fiscal rules of the current Chancellor.

Admittedly Mr Burnham’s economic adviser, Jim O Neill, believes that more can be done within the rules to boost infrastructure investment.

Gamble

Labour have taken a huge gamble this week: they will know that they have only one chance to turn matters around. If the Burnham project doesn’t deliver, prospects for the next general election looks bleak to say the least for the party.

Mr Burnham as Prime Minister will face a whole range of problems. There will be much focus on jettisoned Cabinet members and Starmer loyalists who could be major spanners in the works. Ultimately however Labour’s fortunes will be intertwined with the economy.

It is understandable that Mr Burnham has chosen not to radically alter the fiscal rules. His premiership would be consigned to history before he even entered Downing Street if the markets were imploding as we speak.

Wriggle room

The challenge he is going to face is whether he can deliver the change he promises and economic growth with little fiscal wriggle room.

If living standards don’t improve between now and the election, then it is difficult to see how the political dial moves in Labour’s favour.

The party will continue to be vulnerable to a pincer movement from other progressive parties on their left and the insurgency of the populist right.

Jonathan Edwards was the MP for Carmarthen East & Dinefwr 2010-24