UK Prime Minister Andy Burnham’s announcements during his first 24 hours on the job underscore the political and financial challenges he faces as he tries to jump-start the country’s sluggish economy.
Burnham, from Britain’s left-leaning Labour Party, faces restive voters seeking relief from the high cost of living. At the same time, the investors who help finance the government by buying its bonds are demanding that he reduce public sector debt that has ballooned to levels last seen in the 1960s.
In an effort to balance the competing demands, Burnham surprised pundits by naming former Defense Secretary John Healey as his Treasury chief. Healey, who served in the Treasury under former Prime Minister Gordon Brown, is seen as someone who will make sure the government lives up to its pledge to reduce Britain’s debt pile.
Then, first thing, Burnham made a down payment on his commitment to ease the pressure on cash-strapped consumers. The government announced it would scrap the tax on home electricity use for at least six months beginning in October, saving the average household 45 pounds ($60) a year.
Importantly, the government said the move would be paid for by canceling plans to introduce digital ID, in an effort to reassure investors that Burnham isn’t about to go on an unfunded spending spree.
“Healey has a daunting task on his hands,’’ said Victoria Scholar, the head of investment at interactive investor.
“The government has ambitious plans to tackle cost-of-living pressures … but he faces a very difficult set of public finances to carry these expensive plans through.”
Now that he’s controlling the purse strings, Burnham faces the same issues that have bedeviled every prime minister since the financial crisis of 2008. And their failure to find answers is a big part of the reason that the eight men and women who have taken up residence behind the famous black door at 10 Downing Street in that period have had an average tenure of two years.
Burnham, like his predecessors, faces the challenge of finding a way to reinvigorate an economy that has grown an average of less than 1.5% a year since 2009, compared with an annual average of 3% in the 15 years before the financial crisis.
Burnham received a boost to his cost-of-living reduction agenda Wednesday when inflation fell to its the lowest rate in 15 months in June, buoyed by a drop of food and fuel prices. The rate of the Consumer Prices Index was 2.6% in June, down from 2.8% in May, according to the Office for National Statistics. But experts warn the good news may be short-lived because the conflict in the Middle East will continue to put pressure on wholesale energy prices.
As he develops his economic plans, Burnham will be constrained by promises to reduce government debt, which now exceeds 95% of gross domestic product. According to Britain’s budget watchdog, debt interest payments rose to 111.2 billion pounds ($149 billion), or 8.3% of government spending, in the financial year that ended in April, leaving less money to spend on government services ranging from healthcare to education and defense.
But he also faces a new challenge after his predecessor, like most other European governments, pledged to increase defense spending to 3.5% of GDP by 2035. That came after pressure from US President Donald Trump, who has criticized his allies for not paying their fair share of Europe’s defense.
Meeting that commitment will cost about 36 billion pounds a year, or 500 pounds for each person in the UK, according to estimates from the Institute for Fiscal Studies, a respected independent researcher.
