Andy Burnham is set to become the new Prime Minister in a matter of weeks. IF Intern, Anton Kui, looks at what this may mean for intergenerational fairness in the UK.
A difficult inheritance
With the resignation of Keir Starmer, it seems that Andy Burnham will soon become the next Prime Minister of the UK. While he was a popular Mayor of Manchester and managed to secure a decisive win in the Makerfield by-election, the transition to governing the country will be a difficult one.
Burnham is set to receive the keys to 10 Downing Street at a time when the public finances are under enormous pressure. Overall public debt stands at 95.1% of GDP, the highest level since the early 1960s. Last year, the government borrowed around £132 billion, while spending another £110 billion on debt interest costs.
Unfortunately for Burnham, these challenges are unlikely to resolve themselves in the short-to-medium term. Even though taxes are projected to reach a post-war high of 38% of GDP by 2030-31, the government is not projected to raise enough revenue to cover its existing spending obligations. Debt interest costs, as well as spending on defence, health, and welfare are forecast to increase significantly over the coming years. The Office for Budget Responsibility (OBR) has estimated that if current policy settings remain in place over the longer term, debt could rise to 275% of GDP by the 2070s.
Given this difficult fiscal inheritance, it is worth taking a closer look at some of Burnham’s policy proposals and considering their implications for intergenerational fairness
What Burnham gets right
The UK systematically under-taxes wealth and unearned income from assets, compared to income from work. This has advantaged older generations, who hold a disproportionate share of the country’s wealth, compared to younger people who are mostly reliant on earnings.
Burnham’s previously proposed Land Value Tax (LVT) would help address this imbalance. The tax would be a fairer reflection of disparities in property wealth, such as the fact that 55% of the UK’s housing wealth is held by owners aged 60 and above.
A Land Value Tax (LVT) would levy an annual charge on the value of the land itself, regardless of what is built on it. Many economists regard it as one of the most efficient forms of taxation because the supply of land is fixed. Unlike taxes on income, it cannot easily be avoided by changing behaviour or reducing work. It could also encourage investment to flow away from land and into more productive parts of the economy, while also discouraging land banking.
It is certainly preferable to Stamp Duty, which discourages moving and downsizing by taxing property transactions. Burnham himself described Stamp Duty in 2010 as “a tax on the aspiration of young people to put down roots and get on with life.”
While all great in theory, it remains to be seen if Burnham will have the political will to drive through these reforms, given that property tax reforms have been historically unpopular and difficult to implement.
A graduate tax?
During his 2015 Labour leadership campaign, Burnham proposed replacing tuition fees with a graduate tax. The aim was to end a system in which wealthier families can pay tuition fees upfront, while those without support from the Bank of Mum and Dad are forced to take on more than £50,000 of debt.
The policy does point to a key issue of student loans, but a graduate tax will not be enough to fix the broken student finance system. Any reform must look at the burden placed on young graduates as a whole. Simply bringing more graduates into a system that has become so damaging to young people’s financial prospects is no solution.
An expensive problem
Burnham’s other commitments are unlikely to lead to a fairer settlement between generations. He has pledged to keep the triple lock, which increases the state pension each year by the highest of: 2.5%, inflation, or earnings. Pensioner welfare spending is set to rise from £151 billion in 2024−25 to £196 billion by 2030−31, with the triple lock alone accounting for 0.6% of GDP. The cost of providing the state pension under this system is set to double in the next fifty years.
Our research has shown that switching to a more modest uprating system will save as much as £52 billion by 2045−46. This is money that Burnham will desperately need to enact his other policies that will benefit younger generations.
One such policy came in his speech this week, where he promised to oversee the “biggest council house building programme since the postwar period”, using publicly owned vacant land to minimise costs. With council house building at historic lows and the current social housing waiting list 1.3 million long, there is a clear need for a social housing revolution.
Nationalisation
His public ownership agenda carries similar risks to the public finances. Burnham has advocated for stronger state control of utilities in order to lower water bills, energy bills, and rail fares.
However, nationalising the water industry alone could cost up to £100 billion. The public finances leave little room for an acquisition of this scale, especially of a financially distressed sector. For example, taking Thames Water into public ownership would mean assuming not only its assets, but also its £20 billion in debt. Rather than eliminating these costs, nationalisation would transfer them onto the public balance sheet, leaving tomorrow’s taxpayers to bear the financial risk.
Fiscal trap
Despite these ambitious objectives, Burnham has ruled out raising income tax, VAT, or National Insurance. The tax-to-GDP ratio is already forecast to reach 38% of GDP by 2030-31, and UK gilt yields remain the highest in the G7. So where is he going to find this money?
One answer comes from Lord Jim O’Neill, economist and one of Burnham’s own advisers. He has called for additional infrastructure borrowing to be done through an independent body modelled on the OBR. He claims that bond markets are more likely to accept further borrowing if there is a clear return on investment.
Borrowing for genuinely productive infrastructure is justifiable if it raises productivity and increases the UK’s economic capacity. While the debt will be repaid by young and future generations, they will also be the primary beneficiaries of long-term assets that will help boost their living standard. However, this bargain will only work if investment does translate into greater productivity, which is not a given considering stalling productivity growth across the last two decades.
The growth bet
In many ways, Burnham’s strategy is a bet on growth. It appears he will avoid cutting costs and instead borrow more in the present, in the hope that this will be repaid by higher growth in the future. If it is successful and productivity rises, tax revenue will follow, and the UK’s fiscal position will be improved. Even without running a surplus, public debt would go down as a percentage of GDP. Everyone wins.
However, if the growth bet fails, it will not be current taxpayers that pay the price, but young and future generations. The debt will be even larger, yearly costs of servicing the debt will be even higher, yet there will not have been an appreciable increase in their incomes or living standards. Government services and older-aged benefits for young and future generations will have to be cut well below today’s levels.
Recent history cautions against betting the house on growth. For two decades, economic growth has been sluggish. Between 1990 and 2007, the average person was better off by around 2.5% per year. Today, it is about half that. Medium-term forecasts for productivity growth project a similar fall.
In this time of slow growth, the cost of essentials, such as housing, food, and energy, has risen and now takes up a greater proportion of household incomes. Households feel poorer, and by many metrics they are.
It is the young who have felt the brunt of this stagnation. Essentials take up more of their income than any other age group. Meanwhile, hiring is at its lowest level in 5 years, with entry-level jobs becoming harder to get, due to increasing AI adoption and rising labour costs. A recent report by former Labour minister Alan Milburn warned that young people not in employment, education or training could rise to one in six.
Burnham is right to focus on generating “good growth in every postcode”. Economic growth will be essential to improving living standards for all age groups. However, the risks of low growth must be shared evenly across generations. If growth does not materialise, maintaining today’s spending commitments without reform will simply shift even greater costs onto younger and future generations.
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