Blunting Burnham?

Editors’ Note: MarketMinder is politically agnostic. We prefer no party nor any politician and assess developments for their potential economic and market implications only.

Here is a dirty little secret: Politicians, regardless of country or party, will usually say anything to get elected … then proceed to do next to nothing in office. Not that they are all liars who enter office intending to do nothing,^[i] but governing is hard. Corralling a legislature is hard. Making the math work is hard. And soon the need to be re-elected arises, and no one wants to upset the apple cart. So they drift along. Whatever investors hoped or feared doesn’t happen, or it gets sanded down into oblivion. And don’t look now, but it seems new UK Prime Minister Andy Burnham is already heading down this well-worn path—likely much to markets’ delight.

Markets don’t play party politics. They don’t care about personalities or ideology and don’t deal in terms like “left” and “right.” But people do, and as Burnham progressed from Manchester Mayor to would-be challenger to former PM Keir Starmer to leader-in-waiting and then, yesterday, to 10 Downing Street, a potential “lurch to the left” preoccupied headlines. Not because Burnham actually proposed economic policies traditionally associated with leftism—big tax hikes and runaway spending, basically—but because of offhand comments from him and his inner circle, sometimes years before. If anyone advising Burnham on tax said even half a sentence about tax hikes in the last 15 years, boom, it was allegedly on his policy shortlist. If Burnham once told a journalist Britain overtaxes work and undertaxes capital, boom, draconian wealth and capital gains taxes must be on the way. And if Burnham talks of bringing utilities under “greater public control,” boom, everything is about to get nationalized.

Little of this was grounded in fact. It was mostly innuendo. It was also mere possibility, and market move most on probabilities. But chatter and possibility set expectations, setting the “sentiment” half of markets’ tendency to move on the gap between sentiment and reality. In Burnham’s case, expectations were low.

Now reality is setting in, and it is already surprising to the upside. For the last month, headlines have been preoccupied with whom Burnham would appoint as Chancellor of the Exchequer, aka finance minister, aka person responsible for fiscal policy. Conversation centered on Ed Miliband, the former Labour leader who lately served as Energy Secretary and brought North Sea oil and gas investment to a halt. By reputation he hails from Labour’s left wing, and he lobbied hard for the Treasury post. Oodles of articles warned of the fiscal doom that would come once “Red Ed” started writing the Budget. Only, when Burnham unveiled his cabinet yesterday, Miliband moved to Foreign Secretary and former Defense Secretary John Healey got the Chancellor nod.

Healey does not have a leftist reputation. He is a centrist who served as a junior minister in the Treasury in 2002 – 2007, where he helped craft regional growth policies for Tony Blair and Gordon Brown. That is a very centrist, pro-market pond to incubate in. It also gives him the policy experience to assist with one of Burnham’s flagship aims, devolving more power to cities and regions to direct local investment for maximum return. It is all kind of boring. It is also the status quo, considering the local investment drive started under Conservative Prime Minister David Cameron, then continued under Boris Johnson and Starmer.

Now, it is again a mistake to overrate personality, so take all that with a grain of salt. However, things also appear to be shaping up better than feared on the tax front. On Tuesday, Burnham announced his first policy. It was … a tax cut, perhaps the tiniest one in the history of mankind, but a cut. From October, value-added tax on household energy bills will drop, saving households about $45 annually. Obviously, this isn’t a gamechanger, but Burnham cast it as a down payment on more cuts to come. Ending the freeze on income tax bands appears to be next on his list: In interviews this week, he called this stealth tax hike the number one issue voters raised when he was campaigning for last month’s by-election and pledged to raise the tax-free allowance at least. It has been frozen at £13,000 since 2021. Absent that freeze, it would be £16,000 today, per the Office for Budget Responsibility. Restoring inflation indexation would bring households welcome relief.

Naturally, this set off handwringing about the deficit and “unfunded” tax cuts, echoing the blowback against former Prime Minister Liz Truss’s 2022 mini-budget. Naysayers warn Burnham will negate any tax relief for lower-income households with higher taxes on wealthier folks—maybe higher top income tax rates, maybe higher capital gains taxes, maybe a wealth levy. Burnham, for his part, hasn’t said boo on this beyond citing his need to review the government’s books and saying any actual tax hikes are a matter for another day far in the future. That is politicianspeak for kicking an issue into the long grass. And you know what else is in the long grass? Another election, with populist Reform UK looming atop public polling. That is an incentive to tinker at the margins of fiscal policy, much as Reeves and Starmer did, lest the aforementioned apple cart flip over.

In the near term, chatter and speculation will probably reign. Parliament is heading on its traditional summer recess, opening the “silly season” of rumors and policy trial balloons. Reeves seemed to use this period strategically, testing markets’ reaction to tax ideas, then backing off if UK stocks and Gilts didn’t like them. It was tiring, but it helped keep expectations low and tax changes more modest than feared. That was enough to keep pushing UK stocks up the wall of worry, and we doubt that changes under Burnham. The new boss, we reckon, will probably be a lot like the old boss.