Mike Newton was Conservative parliamentary candidate for Wolverhampton West, and worked for the Bank of England during his career in the financial markets.
We still know very little on the specifics of Burnham’s economic programme, though the broad sweep of policy is emerging. It is firmly old-school corporatist, ITV4 or UKGOLD in feel, taking influences from the ‘40s, ‘60s and ‘90s.
The gilt market feels quite complacent about the risks, particularly given that the legacy Reeves fiscal programme requires significant spending cuts or tax increases in the final two years of the Parliament to meet the fiscal rules. The chances of that going into a general election are slim to none.
Since the Makerfield by-election, gilts have traded quite well on a relative and absolute basis. Immediately after the result, yields spiked out of fear that there would be chaos, but this dissipated rapidly when Streeting and Starmer both threw in their towels at high speed.
This eliminated uncertainty (however favourable a challenge from the Labour Right may have been for gilts longer-term). And the collapse in oil prices has also been particularly helpful.
The combination of these two factors has created a complacent narrative that Burnham is not dangerous for gilts.
The failure to rule out Ed Miliband as Chancellor, an appointment which markets would hate, is inexplicable unless it is true, or there are some major issues behind the scenes. My sense is that investors do not want to believe it is a serious risk, even though exchanges such as Polymarket have it as a greater than 50 per cent probability at this point.
Markets have been reassured by the contributions from credible advisers, in Andy Haldane (former Bank of England Chief Economist), Jim O’Neill (former Goldman Sachs chief economist) and Richard Hughes (former OBR head). These are highly accomplished professionals and well-known to investors. They have certainly provided a smokescreen for some of Burnham’s more radical advisers.
Yet what they have said is far from orthodox fiscally. Out of the three, O’Neill (whom I know and like) has been the clearest in saying that he would support a new fiscal framework that was designed to suit a new policy agenda. Haldane’s essay in the FT on June 5th supports the issuance under certain conditions of war bonds, citing a plan proposed by Keynes in 1940. Any Conservative will find his endorsement therein of compulsory household saving and wealth taxes alarming.
It is growth that links together the various threads of the PM-elect’s fiscal policy. There appears to be an idea that higher GDP growth can be used to expand tax revenue, reduce welfare expenditure (as more people will have jobs) and also improve the credit quality of gilts (thus reducing yields) through the mechanism that a higher tax take will reduce the need to issue, and thus increase the ability to repay.
Burnham was very clear on this when he was asked recently about welfare reform, when he pushed back on ‘crude’ cuts and instead suggested that the way to reduce welfare was to get more people into work through spending more on training and other government programmes.
In other words, spend more now to spend less later. I am not sure that the bond markets will view this as anything other than highly improbable.
The problem with the growth argument is that Labour’s entire policy agenda has been tilted against private sector growth. There is no top cover for deregulation in Parliament, and his talk of ‘good growth’ and ‘aligning communities, universities and government’ sounds like something from the Wilson era not Blair.
Burnham may not realize that this is 2026, and both the underlying problems and the PLP are very different from his Wilsonian and Blairite analogues, until it is too late. Stephen Pollard’s observation that ‘his political body clock stopped when he was last in office’ may prove to be on the money.
Furthermore, the reliance on growth assumes that it is not accompanied by higher inflation. With a high spending, pro-regulation government, crowding out private investment, the chances of higher inflation are greatly increased. This would be very bad for gilts. Yet everything we have heard about his policy agenda so far suggests that it would be more inflationary, not less.
There has been no mention of what the Bank of England might look like under a Burnham government. I have long argued in ConHome that the Bank needs changes to how it operates, and that it should hard-target inflation (see my piece of April 29th). Does a Burnham government continue with a business-as-usual approach, or with one eye on what Chairman Warsh is doing at the Federal Reserve, encourage the Governor to put price stability first?
According to the DMO, 33 percent of gilts are held by overseas investors. The UK needs the confidence of foreign investors and how far their patience can withstand ambiguity around fiscal rules is limited.
Speaking to a very eminent offshore gilt investor over the weekend, the message was simple. Higher taxes kill growth, and not investing in high return private capital at the expense of low return public investment will see the taxpayer on the hook for increasingly high debt to GDP costs. The markets will demand a higher rate of interest for that.
The Tory perspective on the new government’s economic policy should be to continue to argue for a smaller and more efficient state, with reductions in welfare and deregulation of the private sector. I was particularly interested in Andrew Griffith MP’s report on his trip to Sweden (on Substack) with its emphasis on reducing tax rates to drive innovation and ‘slicing’ of welfare budgets.
Burnhamomics will present us with an opportunity to showcase modern right-wing solutions to current problems. It is up to us to make sure those policy fixes are well-thought through and are bold and imaginative. This will give voters a clear choice between looking forward under Mrs Badenoch to the mid-21st century, or backwards under Mr Burnham to the 1990s.
Finally, I was speaking to a good friend from that great city recently about ‘Manchesterism’ and how far the Mayor was responsible for its regeneration? The response from him – ‘There is only one Pep Guardiola‘.
Not everyone has been convinced by Andy Burnham, and the bond markets may well join that list sooner rather than later.
Mike Newton was Conservative parliamentary candidate for Wolverhampton West, and worked for the Bank of England during his career in the financial markets.
We still know very little on the specifics of Burnham’s economic programme, though the broad sweep of policy is emerging. It is firmly old-school corporatist, ITV4 or UKGOLD in feel, taking influences from the ‘40s, ‘60s and ‘90s.
The gilt market feels quite complacent about the risks, particularly given that the legacy Reeves fiscal programme requires significant spending cuts or tax increases in the final two years of the Parliament to meet the fiscal rules. The chances of that going into a general election are slim to none.
Since the Makerfield by-election, gilts have traded quite well on a relative and absolute basis. Immediately after the result, yields spiked out of fear that there would be chaos, but this dissipated rapidly when Streeting and Starmer both threw in their towels at high speed.
This eliminated uncertainty (however favourable a challenge from the Labour Right may have been for gilts longer-term). And the collapse in oil prices has also been particularly helpful.
The combination of these two factors has created a complacent narrative that Burnham is not dangerous for gilts.
The failure to rule out Ed Miliband as Chancellor, an appointment which markets would hate, is inexplicable unless it is true, or there are some major issues behind the scenes. My sense is that investors do not want to believe it is a serious risk, even though exchanges such as Polymarket have it as a greater than 50 per cent probability at this point.
Markets have been reassured by the contributions from credible advisers, in Andy Haldane (former Bank of England Chief Economist), Jim O’Neill (former Goldman Sachs chief economist) and Richard Hughes (former OBR head). These are highly accomplished professionals and well-known to investors. They have certainly provided a smokescreen for some of Burnham’s more radical advisers.
Yet what they have said is far from orthodox fiscally. Out of the three, O’Neill (whom I know and like) has been the clearest in saying that he would support a new fiscal framework that was designed to suit a new policy agenda. Haldane’s essay in the FT on June 5th supports the issuance under certain conditions of war bonds, citing a plan proposed by Keynes in 1940. Any Conservative will find his endorsement therein of compulsory household saving and wealth taxes alarming.
It is growth that links together the various threads of the PM-elect’s fiscal policy. There appears to be an idea that higher GDP growth can be used to expand tax revenue, reduce welfare expenditure (as more people will have jobs) and also improve the credit quality of gilts (thus reducing yields) through the mechanism that a higher tax take will reduce the need to issue, and thus increase the ability to repay.
Burnham was very clear on this when he was asked recently about welfare reform, when he pushed back on ‘crude’ cuts and instead suggested that the way to reduce welfare was to get more people into work through spending more on training and other government programmes.
In other words, spend more now to spend less later. I am not sure that the bond markets will view this as anything other than highly improbable.
The problem with the growth argument is that Labour’s entire policy agenda has been tilted against private sector growth. There is no top cover for deregulation in Parliament, and his talk of ‘good growth’ and ‘aligning communities, universities and government’ sounds like something from the Wilson era not Blair.
Burnham may not realize that this is 2026, and both the underlying problems and the PLP are very different from his Wilsonian and Blairite analogues, until it is too late. Stephen Pollard’s observation that ‘his political body clock stopped when he was last in office’ may prove to be on the money.
Furthermore, the reliance on growth assumes that it is not accompanied by higher inflation. With a high spending, pro-regulation government, crowding out private investment, the chances of higher inflation are greatly increased. This would be very bad for gilts. Yet everything we have heard about his policy agenda so far suggests that it would be more inflationary, not less.
There has been no mention of what the Bank of England might look like under a Burnham government. I have long argued in ConHome that the Bank needs changes to how it operates, and that it should hard-target inflation (see my piece of April 29th). Does a Burnham government continue with a business-as-usual approach, or with one eye on what Chairman Warsh is doing at the Federal Reserve, encourage the Governor to put price stability first?
According to the DMO, 33 percent of gilts are held by overseas investors. The UK needs the confidence of foreign investors and how far their patience can withstand ambiguity around fiscal rules is limited.
Speaking to a very eminent offshore gilt investor over the weekend, the message was simple. Higher taxes kill growth, and not investing in high return private capital at the expense of low return public investment will see the taxpayer on the hook for increasingly high debt to GDP costs. The markets will demand a higher rate of interest for that.
The Tory perspective on the new government’s economic policy should be to continue to argue for a smaller and more efficient state, with reductions in welfare and deregulation of the private sector. I was particularly interested in Andrew Griffith MP’s report on his trip to Sweden (on Substack) with its emphasis on reducing tax rates to drive innovation and ‘slicing’ of welfare budgets.
Burnhamomics will present us with an opportunity to showcase modern right-wing solutions to current problems. It is up to us to make sure those policy fixes are well-thought through and are bold and imaginative. This will give voters a clear choice between looking forward under Mrs Badenoch to the mid-21st century, or backwards under Mr Burnham to the 1990s.
Finally, I was speaking to a good friend from that great city recently about ‘Manchesterism’ and how far the Mayor was responsible for its regeneration? The response from him – ‘There is only one Pep Guardiola‘.
Not everyone has been convinced by Andy Burnham, and the bond markets may well join that list sooner rather than later.