Prime Minister Andy Burnham has outlined a range of areas he would like to see greater spending in. (Alamy)

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The new Prime Minister was keen to hit the ground running when he succeeded Keir Starmer in No 10 last month, promising quick action to help people cope with cost-of-living pressures. He announced that he would take VAT off electricity bills, cap bus fares at £2, and reduce business rates for pubs and restaurants.

When it comes to longer-term policy, Burnham has promised to end rough sleeping and reform adult social care. His vision for the latter, bringing it more in line with NHS provision, is estimated to cost billions of pounds of additional spending every year. The new PM is also under pressure to increase defence spending in response to global security threats.

At the same time, the PM has pledged to stick to the government’s fiscal rules and 2024 manifesto pledges not to raise income tax, national insurance and VAT. 

This has raised questions about how Burnham will fund his plans for government.

Many details will not be confirmed until Wednesday, 28 October, when Chancellor John Healey delivers the first Budget of the Burnham Labour government. Healey, who resigned as defence secretary during the final weeks of the Starmer government over defence spending, has said that the Autumn Budget will be “built on fiscal discipline”.

What are Burnham’s options?

Carsten Jung, leader of the economy team at the Institute for Public Policy Research think tank (IPPR), argued that Burnham and Healey have inherited a better economic picture than Starmer and former chancellor Rachel Reeves faced.

“Rachel Reeves, for all of her strategic mistakes, really fixed the public finances,” said Jung. 

“What she inherited from Jeremy Hunt [her Tory chancellor predecessor] was unsustainable. It was based on cuts to departmental spending which weren’t sustainable. So she went to the painful exercise of increasing taxes to fix that.

“What Andy Burnham inherits is a much better funded state, and he also has headroom against the fiscal rules he inherited, which makes it less dire.”

However, he said that borrowing money to fund government spending could be riskier for Burnham than it was for Starmer due to “jittery” markets and a more precarious global picture. The Bank of England recently warned that it may be forced to raise interest rates later this year if the US war with Iran escalates, which in turn would make borrowing more expensive. 

Jung said that one option available to the government is to increase tax on wealth to bring it closer to tax on earnings, highlighting capital gains tax. 

As things stand, people are charged either 18 per cent or 24 per cent on profit they make when selling, gifting or disposing of an asset that has increased in value, such as a second home. Burnham could increase Treasury revenues by aligning capital gains tax rates with income tax bands of 20, 40 and 45 per cent.

Elsewhere, examples of pro-growth policies according to Jung include the Treasury investing more in “leading industries” in the UK as well as “boosting entrepreneurship” while closing tax loopholes. 

Isabel Stockton, researcher at the Institute for Fiscal Studies (IFS), said Burnham’s ambitions can be split into two categories: those that are less fiscally challenging, such as the cost-of-living measures he announced in his first few days in office, and policies with greater economic implications, like defence spending and adult social care.

Stockton agreed with Jung that borrowing more money would be “difficult” and “risky” for Burnham as it could push the new government close to breaching its fiscal rules, leaving him with two broad options: raising tax and cutting spending elsewhere.

Burnham has already said that the country must get “really serious” about reducing welfare spending to fund priorities like greater defence spending.

Stockton also suggested that the Labour government explore using the National Wealth Fund as a way of boosting spending power –  it was launched under Starmer in 2024 to “mobilise billions of pounds of investment” in UK “clean energy and growth industries”. 

By the end of the current parliament, the NWF should be on track to have capitalised with almost £30bn – with government funds directed to “resources to finance economic activity that supports additional private investment”, opening up investment options for the government. 

However, NWF is still funded by taxation and borrowing, and is run by the Treasury – meaning the challenges around scrutiny on tax and spend remain. 

Stockton told PoliticsHome the limitations Starmer’s government faced on taxation, spending, and spending cuts continue to exist, and remain challenging for Burnham’s government. 

“With any new government, it can make different choices, but it is going to be facing essentially the same constraints, especially given that he [Burnham] says he’s committed to the existing fiscal rules,” said Stockton.

“He says he’s committed to the Labour manifesto on tax, so that rules out quite a few things already. That means that the decisions are going to be difficult.”

2 min read31 July

She won 309,525 votes (around 66 per cent), with Reform UK candidate Sian Astley receiving 157,178 (around 34 per cent), once first and second preferences were taken into account.

Craig, a close Burnham ally who has led Manchester Council since 2021, said: “I am honoured, I am humbled, and I stand ready to serve the three million people that live across this fantastic city region.”

The turnout was relatively low at just over 25 per cent. 

Labour will now need to choose a new leader of the council to succeed Craig.

The by-election in Manchester was triggered after Burnham won a parliamentary by-election in Makerfield, returning to Westminster as an MP and becoming PM just weeks later.

The Greens were initially confident of success in Greater Manchester, following their victory in the Gorton and Denton parliamentary by-election in February.

Former leader of the Green Party Caroline Lucas told The House in June that the party would be “throwing everything” at the contest. 

However, after the first round of voting in Greater Manchester, the Greens were in third place on 12 per cent. Rupert Lowe’s Restore Britain got 9 per cent, the Conservatives 8 per cent, and the Liberal Democrats 3 per cent.

The election used a more proportional voting system than first-past-the-post, in which voters express a first and second choice. Under the system, if no candidate secures 50 per cent of the votes after the first round, then the top two candidates will be given the second preference votes from the defeated candidates.

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Speaking at a press conference on Monday, the Reform UK leader said he would be willing to “negotiate” with Lowe if the Restore Britain leader if he “genuinely wants to have talks”.

However, Farage stressed that he would not be “ditching” his Reform allies.

On Sunday, Lowe offered to work with Farage to bring about a “patriotic government” at the next general election, but subject to several conditions. 

The Great Yarmouth MP said any deal would be conditional on Reform agreeing to five policies, including mass deportations, a ban on the burka, a referendum on the death penalty, and no former Conservative ministers being given a role in a Reform-Restore Cabinet. 

Reform MPs Robert Jenrick and Suella Braverman are former Conservative ministers, and the party’s senior ranks include former Tory office holders like Nadhim Zahawi and Jake Berry.

Speaking this morning, Farage questioned the sincerity of Lowe’s offer.

“If it was the offer of a deal, it came in a very unusual way. I have responded to it, potentially, with an open mind, as I would, but I’m certainly not going to be ditching people who I view as allies and a great asset,” Farage said. 

“We will find out whether he genuinely wants to have talks. If he does, then we’ll start to negotiate.”

He added: “If anything like this were to happen, it would not happen overnight. It would go through a whole series of stages. Whatever’s been said in the past, I’m prepared to put that in the past and have a conversation.

“But I’m not going to commit myself to anything like that right now, and he seems to have given us a shopping list, some of which I have no desire to meet.

“Interestingly, on policy terms, most of the things he talks about are things that I’ve championed for over a quarter of a century. We’ll see.”

Shortly after the press conference, Lowe accused Farage of lying over the offer of a call.

The Restore Britain leader posted on X: “Yesterday’s offer was not one I wanted to make, trust me. I don’t particularly enjoy trying to work with people who attempted to put me in prison on false allegations. My house was raided by armed police because of them. I was willing, and still am, to put that aside to cooperate in order to save the country we all love.”

He went on to say: “The offer remains open to Nigel and Reform. Although outright lying about our private conversations does not help that.”

On Sunday, Farage posted on X that he recognised he needed the support of people from other parties to defeat the left at the next election, but said he would “never turn my back on my team”. 

Lowe was elected as a Reform MP at the 2024 general election but left the party 18 months ago after a public falling out with Farage and set up his own party, Restore Britain. 

Farage said today it was a “myth” that he personally fell out with Lowe, saying “everyone fell out with Rupert Lowe”.

In more recent months, Restore Britain, seen as further to the right than Reform on issues like immigration, has shown signs of being an electoral headache for Farage by taking votes from Reform. 

Lowe’s party came fourth at last week’s Greater Manchester mayoral contest, ahead of the Conservatives. 

At the same time, Reform’s ratings and those of Farage have dipped in recent days, with Labour benefiting from an Andy Burnham bounce and Farage continuing to face questions over his financial arrangements.