How Andy Burnham can raise living standards

Labour came into office with a Plan for Change, yet it’s been a story of U-turns and change of plans. The first priority was growth, but the former Chancellor Rachel Reeves raised taxes that depressed business investment and job creation, such as the hike in employer national insurance contributions that cost businesses £28 billion.

The other priority was living standards, but Starmer and Reeves kept the personal allowance and income thresholds frozen despite spiralling inflation, which means people keep less of their hard-earned money.

Now the new Prime Minister Andy Burnham said in his opening speech in Downing Street that he wanted to give people “breathing space” to “help with the cost of living”. He and his new Chancellor John Healy have announced that the government will remove VAT from electricity bills, saving a typical household about £45 a year, a measure funded not by higher taxes or higher borrowing but by scrapping Starmer’s digital ID scheme.

Andy Burnham has also committed to a ten-year mission to raise living standards through reindustrialisation, more affordable housing, infrastructure investment and greater public control over utilities such as water. All this sounds eerily familiar, a variation on Keir Starmer’s promise to deliver “a decade of national renewal” and “higher living standards in every part of the United Kingdom”. These goals were part of “missions” which became “measurable milestones” overseen by Labour’s own data guru Darren Jones, now sacked as chief secretary to the PM. “Mission-led government” was widely touted as a new way of doing politics before being ridiculed in private by senior Cabinet members and then quietly abandoned.

Burnham and his team have a chance to change course. Their diagnosis of forty years of neoliberalism creating entrenched inequalities between people and regions is true, just as their ambition to improve living standards in the short-term is realistic. To do so, they need to begin by recognising that living standards are now worse than when Labour took the reins of power two years ago. 

As reported in The Times, In the quarter before the 2024 election, real household disposable income was on average £6,329. In the first three months of this year, it reached £6,295. This doesn’t sound much, but the average obscures the disproportionate impact on the bottom half of the population — people in the heartlands who will vote Reform or Green to punish Labour for its inaction.

The government will blame this hit to living standards on the shock of higher oil prices following Donald Trump’s Iran war. Burnham has repeated this, writing recently that “the closing of the Strait of Hormuz raised the cost of filling up the family car. The war in Ukraine pushed up food bills and energy prices”. While these shocks are real enough, they have not caused the decline in living standards. Rather, they highlight and exacerbate underlying vulnerabilities — a dire lack of food and energy security linked to low domestic production. The UK imports more food than comparable countries such as Germany or France. UK electricity prices are 45 per cent above the median for the G7 advanced economies, and Britain has the lowest energy storage capacity in this group.

Moreover, as research by the National Institute of Economic and Social Research has found, the main drivers of lower living standards are domestic decisions rather than global shocks. What has led to lower living standards is a series of government choices — from the hike in employer National Insurance Contributions in Rachel Reeves’s first budget in October 2024 that has increased unemployment to the freezing of income tax thresholds that means people pay a higher proportion of their earnings in tax.

All this has hit low-income households hardest, especially the bottom 30 per cent of UK households who typically spend a larger share of their budget on energy and food. Therefore, higher energy and food prices erode their living standards beyond the effect of the shock on their cash incomes. 

And that’s before we factor in above-inflation rises in housing costs. In 2024-25 the living standards of the poorest 10 per cent of UK households declined by 1.3 per cent in 2024-25 and in 2025-26 by about 1.5 per cent. While this doesn’t sound like much, it’s tipping the very poorest households into destitution — extreme poverty when people lack essentials and have to choose between eating or feeding their children.

What can the Burnham government do to turn around this trend and increase living standards this side of the next election? One option is to target help at those households most at risk of sliding into poverty and destitution, which could take the form of direct cash payments, similar to the Cost of Living Payments in 2022-23 of about £900 per year. 

The other option is to reverse the Chancellor’s decision last November to keep income tax thresholds frozen until 2031. That freeze will pull ever-more low-income households into paying the basic rate of income tax of 20 per cent, beyond the tax-free allowance of £12,570 which has not been uprated since 2021. Five years of high inflation have eroded this and penalised poorer people.

Burnham’s premiership is based on the promise of a circuit break in British politics

The combined cost of these options would be about £10 billion. Under the fiscal rules that Burnham and Healy said they would uphold, extra spending cannot be funded from higher borrowing. Labour will therefore have to cut public expenditure elsewhere. Two obvious areas are the ballooning welfare bill and the pension triple lock. For example, the total cost of Personal Independence Payments (Pip), a key disability benefit, is expected to rise to more than £41 billion per year by 2030 while preventing people from returning to work. Meanwhile, maintaining the trip lock will add some £15.5 billion annually by 2030 as wage growth has been weaker and inflation stronger.

Burnham’s premiership is based on the promise of a circuit break in British politics — “power out of Westminster, an economy rewired for ordinary people, and good growth in every postcode”. Does he have the courage to be unpopular with his own ranks and remind them that “bold, confident, authentic” Labour is the party of work not welfare?