The route is still uncertain, but the destination feels inevitable: Andy Burnham looks set to become the next prime minister of the United Kingdom.
This marks a huge change for the Labour Party, yet the market reaction was surprisingly muted. Following news of Prime Minister Sir Keir Starmer’s resignation, 10-year gilt yields were stable at 4.85 per cent, and sterling remained unchanged at $1.32. Investors had long expected Starmer’s departure, and Burnham’s by-election victory last week only strengthened expectations about what comes next. For now, investors seem content to wait for more information – but the tranquility might be shortlived.
What a Burnham premiership will look like
Burnham already has a long political career behind him. He has served as shadow home secretary, shadow education secretary, secretary of state for culture, media and sport, chief secretary to the Treasury, health secretary, and (most famously) mayor of Greater Manchester. This means that we already know a good deal about his politics and what the probable future prime minister stands for.
His years as mayor spawned ‘Manchesterism’, which UBS analysts characterise as greater public control over housing, energy, water and transport in pursuit of lowering costs. In his by-election victory speech on 19 June, Burnham called for a programme of re-industrialisation and a break from ‘trickle down’ economics. He said that his win could be a turning point for the country and represented a “final chance” for the Labour Party to change.
Yet given the realities of the government’s fiscal position, Burnham might struggle to apply ‘Manchesterism’ at a national level. The past two years have shown us that it is possible to spend more, stick to the fiscal rules and avoid raising major taxes – but that doing all three at once is incredibly difficult.
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Tax and spending policies that could change
Earlier this month, Burnham implied that he would raise the £12,570 tax-free personal allowance for workers. On the BBC’s Question Time, he pledged to “have a proper look at this and . . . develop a policy”. In the past, Burnham has also spoken in favour of reintroducing a lower 10p starting rate of income tax.
He has previously said that there is “definitely a case” for restoring the 50 per cent top rate of income tax. At the same time, his by-election manifesto pledged to maintain Labour’s 2024 promise not to increase VAT, income tax or employee national insurance contributions (NICs) for working people. As the chart below shows, these are some of the government’s biggest revenue raisers, and ruling them out will make it more difficult to fund ambitious spending plans without increasing borrowing.
Changes to inheritance tax could also be on the agenda. As health secretary, he suggested that a 10p charge should be applied to all estates, with the proceeds used to pay for free social care for all. Burnham is thought to be a supporter of proposals from campaign group Fairer Share, to replace stamp duty and council tax with a property tax set at 0.48 per cent of a home’s value. Advocates argue that this reform would mean that 75 per cent of households pay less, while an initial cap would ensure that no homeowner would be charged more than £1,200 above their old council tax bill.
Burnham has also said that he would honour Labour’s manifesto promise to keep the state pension triple lock. But maintaining the status quo here still means shouldering a high cost. According to estimates from the Office for Budget Responsibility (OBR), the triple lock is expected to cost £15.5bn a year by 2029-30 – around three times more than initial expectations.
Burnham has previously argued that bringing energy and water services back into public ownership would reduce household bills. In 2025, a government policy paper estimated that renationalising the water industry alone could cost around £100bn, although other estimates put the figure closer to £60bn. For context, this is around the size of annual spending on education or universal credit.
Taken together, these proposals point towards a more active role for the state. But the question for investors is not what Burnham would like to do, but what he can realistically deliver given the UK’s fiscal frame.
The chancellor really matters
After initially unnerving investors with talk about being ‘in hock’ to the bond market, Burnham has committed to meeting the government’s current fiscal rules of covering day-to-day spending with tax revenue by 2029-30 and reducing the debt-to-GDP ratio in the same year. Edward Allenby, senior UK economist at Oxford Economics, thinks that “given some nervousness in markets about Burnham’s approach, we suspect the new leadership will err on the side of caution and opt against tweaking the fiscal rules in the near term”.
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But due to the speed of developments, many details remain unclear. Allenby adds that “there’s little to suggest Burnham’s team has a detailed policy package already in the works”, which means that any significant economic plans will probably be announced after this year’s Autumn Budget. The reality of a Burnham premiership will probably not look radically different to a Starmer one: same fiscal rules, same manifesto tax constraints – at least initially.
Over time, the evolution of policy will hinge on his choice of chancellor. There had been speculation that Rachel Reeves could continue in post under a new leader, but more recent reports suggest that she would not represent a sufficiently fresh approach. Speculation is mounting that Ed Miliband (the energy secretary) and Wes Streeting (former health secretary and possible leadership hopeful) are now under consideration for the role.
Streeting is seen as a more centrist figure. Earlier this year, Panmure Liberum research suggested that a hypothetical Streeting premiership would only trigger a modest movement in bond yields – and if he is installed as chancellor, we could see something similar. Nonetheless, he is known to favour substantial tax changes, and proposed a “wealth tax that works” by bringing capital gains tax in line with income tax as part of his leadership bid. Streeting argues that the current system “is not fair and it’s bad for our economy”. He has said that equalising rates could strengthen incentives to work, and raise up to £12bn per year.
Analysts expect Miliband to pursue a more interventionist approach to net zero, implying higher levels of public spending. Panmure Liberum analysts also estimated that a potential Miliband premiership could see gilt yields rise by around 0.5 percentage points across all durations. Sharon Graham, general secretary of the Unite union, urged against his appointment at the weekend, saying that as chancellor Miliband would be a “noose around the neck” of job creation. Some in Burnham’s inner circle are said to want to retain greater flexibility over climate policy, due to the possible implications for national security and unemployment.
The contrast between the two candidates illustrates the sheer range of outcomes that markets are currently grappling with. Streeting is seen as a centrist who would seek to reassure markets while pursuing targeted tax reforms. Miliband could potentially place far greater emphasis on state-led investment and industrial policy. The choice of chancellor will determine whether markets see a Burnham premiership as a continuation of Labour’s recent economic approach or the start of a more radical shift.
A change to the fiscal rules?
Although Burnham is expected to stick to the current fiscal rules initially, they could be relaxed or modified if pressure on government finances intensifies. Oxford Economics’ Allenby thinks that some of the government’s existing headroom will probably be eroded by higher gilt yields and market expectations for interest rates, leaving very limited room for manoeuvre.
The day of the Makerfield by-election result coincided with May public finance figures, which underscored the pressure on government finances. Analysts at Pantheon Macroeconomics describe borrowing as getting off to a “terrible” start, running £7.7bn above OBR forecasts just two months into the fiscal year. The overshoot in May was driven by spending and a rise in interest payments driven by an increase in retail price index inflation, which pushed up repayments on index-linked gilts.
Rob Wood, chief UK economist at Pantheon Macroeconomics, believes that some loosening of the fiscal rules is likely, given how frequently they have been revised by governments in the past. Analysts at UBS point to the recently published pamphlet from the Tribune group of leftwing Labour MPs, which proposed extending the timeframe for meeting the fiscal constraints. UBS economists say that they will “watch closely” for clearer signals on policy direction.
With so little concrete information to go on, the UK’s risk premium remains modest, and Wood estimates that 10-year gilt yields will rise by around 0.1 percentage points as Burnham moves closer to No 10. Analysts at Mizuho point to the growing list of unanswered questions: how Burnham might come to power, who would emerge as chancellor, the economic policies that a new top team would pursue, and the timing of the next Budget.
The calm could be disrupted as more details emerge. Lale Akoner, global market strategist at eToro, says that “any move to increase borrowing for investment would need to be carefully communicated to avoid unsettling gilt markets, which remain highly sensitive to fiscal credibility after the turmoil of 2022”.
Will bond markets stop Burnham?
The ‘mini’ Budget in 2022 demonstrated the powerful feedback loop between financial markets and political decision-making. Then Prime Minister Liz Truss’s unfunded tax cuts triggered a sharp rise in gilt yields, and the market reaction was severe enough to force a rapid reversal of policy – and a change of prime minister. The period showed us just how rapidly UK assets can re-price when credibility is in question. Matthew Ryan, head of market strategy at financial services firm Ebury, says that price movements are “typically swift and brutal on the way down, and slow and incomplete on the way up”. This means that we are still living with the legacy today.
To critics on the left of the Labour Party, this is an undesirable state of affairs. Last month, leftwing grandee Diane Abbott said that “British politics and British parliament can’t be run at the behest of bond markets . . . MPs might as well go home”.
Simon French, chief economist at Panmure Liberum, argues that markets are just enforcing necessary discipline. “When you are selling assets in an economy that has seen inflation run at 3 per cent a year since the global financial crisis, has seen debt/GDP rise by 60 percentage points over the same period, has introduced significant trading frictions with its largest trading partner, and presided over the highest energy costs in the world, expect limited patience from your creditors,” he said.
Given estimates that a 1 percentage point increase in gilt yields would raise government borrowing costs by around £15bn by 2030, Burnham – however he gets to power and whoever his chancellor is – could ultimately find that this is an expensive time to test the market’s patience. Burnham may have very different political instincts, but he will inherit many of the same economic constraints as Starmer.