What might we expect from a Burnham premiership

Core argument  

The report’s diagnosis of what’s going wrong with the UK economy is familiar: costs for basic goods are unacceptably and structurally high and bringing them down should be the political priority of government.

Keir Starmer’s government shared this diagnosis. However, the report is explicit in criticising Starmer’s response as addressing the symptoms rather than the causes through a mix of income redistribution via the welfare state, removing supply side barriers in the form of planning reform, and tighter regulation of utilities. The report’s core argument runs that to really address structurally high costs you must address ownership of and access to basic goods and that the state is uniquely placed to step in where markets have failed.  

It argues that the programme of privatisation of utilities in the 80s and 90s has directly contributed to high costs through reliance on expensive capital that required high returns. The public sector, on the other hand, is seen as a better builder and custodian of essential infrastructure because it can borrow more cheaply and is incentivised differently. Energy, housing, and water are the major sectoral focuses of the report, identified as basic goods whose costs have risen because of market failure.

The state would intervene predominantly through taking ownership via public corporations – accountable but independent and commercial organisations (see Post Office Limited). Public corporation borrowing falls outside of government debt and therefore, it is argued, this would be consistent with the existing fiscal rules, which Burnham has committed to. The report describes three forms of intervention:

• Dealer: State enters markets to trade goods, stabilise prices and build strategic reserves  

• Producer: State builds productive capacity and competes with private companies to sell goods

• “Decommodifier”: A longer-term push to do more with general taxation to guarantee access to basic level of essential goods (e.g. subsidising a base level of energy per household)

The report regularly states that this is not an anti-market position. On the contrary, it argues that by intervening to reduce the costs of foundational goods, investment risk is reduced, costs for businesses are reduced, and the whole economy benefits.

What could the programme look like in practice?

• Short term, demand side cost of living measures

- The report is specific in suggesting some general taxation-funded measures in the short term, including removing further policy costs from consumer energy bills. Henham’s conversations corroborate this: Burnham’s team is planning for a significant cost of living intervention early in his premiership.  

• An expanded role for GB Energy

- The report repeatedly references GB Energy and implies that it is currently not set up or sufficiently capitalised to deliver on its full potential. Ed Miliband did originally intend GB Energy to eventually become a “producer”, so we could see Burnham move faster towards a GB Energy that looks more like Europe’s big state-owned energy companies.

• A reopening of the zonal pricing debate

- The report is critical of the UK’s existing energy market and its signals, which it says result in generation being located for best returns rather than need.

• Radical devolution

- Not a topic that this report engages with, perhaps surprisingly, but the overcentralisation of the UK has been a common theme of Burnham’s public contributions for several years, so going further and faster on devolution is an obvious lever and a speech looking at fiscal policy and devolution is expected next week.

• A bigger state role in delivering housing

- The report points to the £37bn housing welfare bill as a demonstration of a housing market that has failed – “Every pound of housing benefit is the fiscal half-life of a council home that was sold and not replaced”. Building social housing is presented as a fiscal necessity to bring the housing welfare budget down. In practice the new government could choose to bring forward delivery of the previous government’s£39bn Social and Affordable Housing Programme – much of which was slated for the back end of this Parliament – and/or reform funding and support available to councils to build their own homes, or even create a new state housebuilder. It will likely continue and perhaps go further with reforms to Right to Buy and potentially leasehold reform.

• A roadmap for the nationalisation of water

- This would be a politically popular approach to fixing a market considered by the authors of this report, and many in the Labour Party, to have failed.

How much does this differ from the current government?

Taken in full, the report represents a significant and radical increase in the role of the state in the economy. However, even with risk transferred onto public corporations, it seems unlikely that this would not trigger an adverse market response. It would also depart from the previous government’s approach sufficiently to lead to loud calls for a general election. How much of this agenda a Burnham government would adopt will be signalled heavily by his choice of Chancellor. Either way, Henham’s view is that businesses should prepare for a government prepared to do even more with the power of the state.

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Images: UK Government / Wikimedia Commons (Open Government Licence)

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