Andy Burnham’s empty toolbox

If (when) Andy Burnham reaches Downing Street, he will discover what every recent Prime Minister has eventually discovered: Britain is poorer, more indebted and more constrained than politicians are willing to admit.

The romantic Labour vision of a Burnham premiership is one of a return to a more interventionist economic model. The left wing of the Labour Party have long imagined an activist state that could attempt to drive growth, rebuild the nation’s floundering industries and correct decades of supposed economic imbalance. Yet by the time Burnham arrives in Number 10, he will find that the traditional tools of Labour interventionism — large-scale nationalisation, heavy borrowing and open-ended public spending — are far harder to use than imagined, as has been found out by Starmer and Reeves.

Public debt now stands at about 100 per cent of GDP. Debt interest alone cost Britain £110bn in the 2025/26 financial year, one of the highest levels seen in the past 50 years. Such debt levels exist whilst an ageing population continues to push up spending on pensions, healthcare and social care.

Economic growth has been stagnant for more than a decade, and productivity has remained stubbornly weak, especially in the public sector. The tax burden is on course to reach levels never previously sustained in peacetime. The Labour Party, in its 2024 election manifesto, pledged not to increase the three main revenue-generating taxes for “working people”: Income Tax (basic, higher, and additional rates), National Insurance and VAT. Despite Reeves fiddling this pledge via threshold freezes, if Burnham stands by his party’s manifesto, the room for manoeuvre is remarkably tight.

The consequence is that many of the policies instinctively associated with the Labour left have become extraordinarily difficult to deliver. Speedy nationalisation would require compensation running into the tens of billions, and even if the plan was to pursue nationalisation by the expiration of contracts, as with the railways, then costs quickly mount in the long-term. Large increases in day-to-day spending will sit uneasily alongside Labour’s own fiscal rules and attempting to borrow on a significant scale would likely invite the sort of market reaction that brought Liz Truss’s premiership to a predictably abrupt conclusion.

That fiscal reality does not eliminate Labour’s instinct to meddle in the economy. It merely changes the form that intervention could take. If the state is too cash-strapped to own industries outright, a Burnham government could seek to influence where private capital is invested instead.

In fact, the foundations have already been laid. Rachel Reeves and Ed Miliband’s creation of the National Wealth Fund in October 2024 was more than an efficiency and rebranding drive. By bringing together the UK Infrastructure Bank and expanding the state’s investment capabilities, they created a vehicle which can funnel capital towards “strategic” national objectives rather than leaving investment decisions solely to the market.

The National Wealth Fund’s ambition is considerable. Ministers will help mobilise more than £100bn of investment into sectors such as carbon capture, floating offshore wind, battery manufacturing and green hydrogen. Alongside Great British Energy sits an expanding British Business Bank, whilst the Mansion House pension reforms seek to encourage pension funds to allocate a greater share of Britain’s retirement savings toward domestic investment. The reforms reveal that the government increasingly wishes to guide it, and in practice recent history suggests that means politicising investment by directing it towards favoured green and renewable initiatives. 

Rachel Reeves allies have been briefing that she has “unfinished business” at the Treasury. One can only hope, for the sake of taxpayers, that she is never afforded the opportunity to complete it. Yet if Burnham were to appoint Miliband as her successor, he would inherit not only Reeves’s fiscal constraints but also the institutional architecture she has helped create. The task would not be to build a developmental state from scratch, but to deepen one already taking shape. 

Burnham himself has long looked admiringly across the North Sea. In a 2023 article entitled, “What would a genuine plan for levelling up the north of England look like? Ask a German”, he argued that Britain should learn from Germany’s stronger regional institutions and commitment to reducing geographical inequality. Miliband has likewise spent much of his political career arguing that Britain’s economy suffers from chronic underinvestment and excessive short-termism.

The attraction is obvious. Britain has long suffered from chronically weak business investment, the second lowest in the G7. Germany, by contrast, has consistently invested more than Britain, particularly in business investment, whilst maintaining stronger manufacturing, notably higher productivity and far more balanced regional economies. It’s not terribly difficult to imagine Labour MPs looking enviously to Germany’s state-owned national development bank, KfW (Kreditanstalt für Wiederaufbau), which provided €112.8bn of financing in 2024 alone.

However, those looking enviously towards the continent may once again come up against depressing British realities. Britain’s National Wealth Fund may have an ambition to crowd in more than £100bn of private investment over time, but it began life with just £27.8bn of capital. The British Business Bank continues to expand its role, and one can easily imagine a Miliband Treasury seeking to turn it into a British KfW. Yet Germany’s development bank sits within an ecosystem of regional banks, high domestic savings, globally competitive manufacturers and an export-oriented industrial economy. KfW channels capital within an already successful economic ecosystem; it wasn’t’ ever expected to compensate for its absence.

Yet there is a second major problem beyond Britain’s weaker economic foundations, a problem which ultimately means there is little difference between full-scale nationalisation and a “mere” developmental approach. Institutions such as the National Wealth Fund and a larger British Business Bank inevitably require somebody to decide which sectors deserve capital and which do not. Ministers call this supporting “strategic industries”; free marketeers would call it picking winners. The National Wealth Fund’s priorities reflect political judgement about where Britain’s future lies. History suggests governments are considerably less successful than markets at identifying tomorrow’s winners before they emerge.

That is the rude awakening awaiting any future Burnham administration. Britain may be able to imitate the architecture of a developmental state, but institutions cannot recreate healthy economic conditions. Even the best designed development institutions are no substitute for strong productivity growth, competitive markets and a business environment that rewards enterprise.