Callum Price: Why, when it comes to markets, does Andy want to ‘burn’em’ to the ground?

Callum Price is Director of Communications at the Institute of Economic Affairs, and a former Government special adviser. 

For someone who talks so much about how much he hates Westminster, Andy Burnham really enjoys popping down to SW1 to give a speech to an establishment think tank – particularly if there are live questions about the Labour leadership swirling around.

Last month, it was the IFS to talk about his brand of ‘Manchesterism’. This week it was the Resolution Foundation to discuss re-focusing politics on ‘un-sung Britain’. Among the usual huff and puff about the evils of unregulated markets (are these unregulated markets in the room with us now, Andy?) and how good the buses in Manchester are, he sought to address his previous comments about being ‘in hock to the bond markets’.

He never meant that we should ignore the bond markets, or even blame them, his clarification goes. It is the decisions of politicians that have led us to being in hock to those markets, and it is only the decisions of politicians that can get us out of this situation.

So far, so good. Next time the Labour Party is in crisis, he is welcome to come and speak to the IEA about how politicians need to get serious about our debt and spending problems.

But then it reverts.

The decisions that he wants politicians to take are not, in fact, to reduce spending; but to spend more. He argues that if we give away control of the essentials, we give away control of their costs. The key to getting costs down then, is to take control back through compulsory purchases and nationalisation. The markets, I’m sure, will be delighted.

The example he gives is housing: it is hard to control public spending when you need to chase private rented sector rents through the benefits system. He quotes research by the National Housing Federation that suggests building 90,000 social homes could save the Exchequer £3.3 billion in reduced Universal Credit claims over the next thirty years. Burnham extrapolates that to pay for a new target he sets, of building 500,000 new social homes by 2030, which he says will save £18 billion in the long run.

The same NHF report puts the cost of building those 90,000 social homes to the government at £12 billion, so following Burnham’s logic his target would require an outlay of £66 billion now, to save £18 billion over the next thirty years.

These numbers won’t exactly fill our creditors with confidence, but Andy has a plan to make us think more long-term and in a more market-friendly way.

In his mind, the broken Westminster political system has led to short-termism and instability, prevented politicians taking sensible long-term decisions and thus made the markets view us with distrust.

His diagnosis may not be entirely wrong – politics incentivises short termism. Westminster works to five-year windows (like his own 2030 hosing target), and governments will prioritise reforms that bear fruit sooner rather than later.

So, should we therefore make politics less important, take power out of the hands of a dysfunctional system and instead into one, the market, that empowers individuals, reduces prices, and drives living standards? Unfortunately, not for Burnham.

His prescription would only make the problem significantly worse. Firstly, he wants to renationalise swathes of the economy. He spoke about how bitter he was at having to pay millions for taking bus-depots back into public ownership after a fight in the courts, and wants to give councils the powers to compulsorily buy rented properties that aren’t up to standard.

If businesses care about one thing above all else when investing in a country, it is whether their assets are likely to be stripped from them by the state on arbitrary grounds. While the unique ability of a government to raise money through taxation is one of the things that enables it to borrow money at vast scales, a programme of appropriation is not the sort of things markets look for to secure a return on their government bonds. It will lead to a collapse in private investment and with it, tax receipts.

Secondly, Burnham wants ‘root and branch reform’ of Westminster and a new political culture. In practice, this means electoral reform, reform of the ‘whips’ system to empower individual MPs over the government, and Lords reform. This, he argues, would make a more stable and collaborative system in which the markets would have greater confidence and certainty.

I’m not sure what sort of stability Burnham has in mind here, but for anyone who has ever paid attention to Westminster politics, empowering MPs to vote and behave as individual actors over members of a governing party does not exactly scream consensus and unity. Maybe I am just a product of the failed Westminster consensus, but the ability of a government to whip its MPs in order to pass vital legislation like finance bills seems like a pretty important pre-requisite for stability.

Further to this, while British party politics is not exactly a bastion of majoritarian stability at the moment, it would be fair to assume that under a PR system the Greens and Reform would have had a larger seat at the table much sooner. One may argue that this is only fair given their vote shares, but to hold that this is the path to consensus and stability is a more questionable assertion.

Burnham’s diagnosis of the relationship between the British state and the bond markets is closer to the mark than often suggested. But given the solutions he proposes, it is no wonder those markets have a wobble every time he gets close to Westminster.