Andy Burnham has finally become prime minister, but his timing could hardly be worse. On his first day in Downing Street, he faces at least six interconnected crises:

• war,
• inflation,
• recession,
• bond-market speculation,
• political grievance, and
• climate change.

None of these crises was created by Burnham. But every one makes the others more difficult to solve, and conventional Labour politics offers no convincing answer to any of them.

The war in the Gulf is disrupting energy supplies and driving inflation.

GDP per person is falling, investment is weak, and austerity has hollowed out public services.

Hedge funds are testing the government in the bond market, while the Treasury's fiscal rules prevent the investment Britain desperately needs.

Burnham therefore faces a fundamental choice. Will he serve financial markets or voters?

This video argues that Britain's problems cannot be solved within the neoliberal economic framework that created them. A currency-issuing government is not like a household. Money is not the real constraint: productive capacity, labour, skills, energy and natural resources are.

Fiscal rules must be replaced by investment rules. Wealth and land must be taxed more effectively. Public services must be rebuilt, monetary policy must serve the country and the transition away from fossil fuels must become Britain's industrial strategy.

Unless Burnham changes Britain's economic model, he will fail, and the resulting political grievance could threaten Labour and democracy itself.

This is the audio version:

The Debate Ammunition for this video is available here.

This is the transcript:

Andy Burnham has always wanted to be prime minister. He tried in 2010; he tried in 2015. Now he's got the job, but his timing is terrible. Ignore all the choreography, the tittle-tattle, and the gossip of the next few days, and let's look at the reality.

He's inherited at least six massive crises on his first day in office. None of these crises was created by him. Each crisis does, however, make every other crisis harder to manage. And together, they define the problems that our economy is facing. And the simple fact is that conventional politics and conventional economics offer no obvious solutions to any of these crises. The question is whether a different framework exists to manage them. And is Andy Burnham willing to look at it? That is what this video is about.

Back for a moment. Forget the number 10 photos. Look behind that front door as Andy Burnham begins in a world already in turmoil. War, recession and climate risk are all arriving together, and the UK is already febrile. Economically and politically, stress is to be seen everywhere. And markets are watching every political decision, and public confidence in government has already collapsed. Andy Burnham is not going to change that for very long.

Fiscal rules are severely restricting government action. Andy Burnham's room for manoeuvre looks to be extraordinarily limited unless he rewrites the rules. So what is he up against, and what can be done about it?

Let's look at the first crisis. This is the war in the Gulf. That war has already disrupted global supply chains. The Strait of Hormuz is now shut again at the time of making this video, and we know that this is likely to remain the case for some time to come. Trump seems delighted to be at war with Iran again. And there is no end in sight to that war, so oil and gas prices, which have already risen sharply again, are going to continue to do so.

Britain is most especially exposed to imported energy costs these days. High energy costs feed into inflation across the economy, and that inflation is the second crisis that Andy Burnham has got to face. He's got to resolve the stresses of the conflict and the domestic consequences. And that domestic consequence arises because of our fossil fuel dependence in the UK.

There is no Green New Deal in this country because Labour abandoned it before it even got into office. So, we have a crisis of war and defence issues, and we have a crisis of fuel and economic issues. Anyone pretending otherwise is kidding themselves. And there is little we can do about either in existing frameworks, so what will Burnham do? I'll come back to that later.

But let's talk about the next issue he has to face. And that is that the UK is already facing a weak economy. In fact, GDP per person in this country is already falling. This chart shows that.

Look at that downward turn on the right-hand side, and you'll see that this figure, which is the UK's gross domestic product, our national total income, when divided by the number of people, is falling. And in fact, we are not doing very much better now than we were almost a decade ago.

We are not growing in individual terms. We are seeing our incomes fall, and unsurprisingly, people aren't happy. Productivity and investment remain chronically weak. Industry continues to decline across the UK. Inflation is rising while confidence is falling. Austerity has already weakened the UK, and more of it can only make things worse. And we have chronic over-speculation and chronic underinvestment in the City of London. We are reaping what we have sown. And if growth was the goal, it has not happened. Burnham says he wants growth now, but we have an economy utterly incapable of delivering it as it stands.

At the same time, he will have to face what the markets are calling a bond market crisis. Now, there isn't a bond market crisis, but as a matter of fact, markets are looking to test Andy Burnham's credibility. There's around £100 billion of UK bonds, which are owned by hedge funds now, and they do like to speculate. They do like market turbulence, and they're going to create it now Andy Burnham is in office. And they're going to test his resolve with regard to interest rates.

And they can do that because Andy Burnham, like all his predecessors, is constrained by the fact that he believes he is dependent upon the funds that the Treasury can borrow from the City of London. As a consequence, and because the markets know that they can play games with that belief, interest rates in the UK are now approaching 6% in some cases on government bonds, which is a ludicrously high cost and quite unjustified.

But that speculation in bond markets is going to eventually tip into extra costs for the government. It's already spending £100 billion a year on interest, quite unnecessarily, because that cost could be reduced by reducing the base rate of interest if the government instructed the Bank of England to do that and by reducing interest payments on central bank reserve accounts. But the government isn't willing to do that. And so this fight between the bond markets and the government is going to continue quite unnecessarily.

And that is fuelled by the fact that fiscal rules were created to reassure investors, but they're not, as is obvious, and if Andy Burnham maintains his commitment to fiscal rules and strict spending limits, they are simply going to exploit that for their advantage by pushing up interest rates whilst he is going to pay the cost, as will we, because the government will not undertake the actions that are required on our behalf.

He should be declaring a national emergency to deal with this. We have got a national emergency. The City of London is at war with the government. It's time that we said so. It's time that action was taken to stop this. Quantitative tightening run by the Bank of England has to end because that forces up interest rates, and denies bonds to the market which they need, and makes them more illiquid. And as a consequence, there's less money for investment.

But Burnham is trapped between markets and voters. He has to decide who he's going to serve. And there is only one group, at the end of the day, who he must keep happy: that is voters. Will he? I don't know. That's the problem we face there.

And political grievance is continuing. And this has real economic causes, and this is the next crisis he faces. The consequence of the fiscal rules and austerity is that voters have lost confidence in mainstream politics. Living standards have stagnated. Public services have deteriorated. We see it everywhere. Inequality is growing, and that's true long before taxes and benefits are taken into consideration. Wages are stagnant. The data shows that there's a real spread of issues around this.

Look at this chart.

It shows the difference between the amount of benefit a person receives from the government and the amount they pay in tax. Benefits are in green. These include the value of benefits like the NHS and education, and subsidies for transport by way of the roads, for example, and everything else that a person might receive, as well as direct benefit payments, and the amount of tax they pay.

Households in the UK are split into five equal groups for the purposes of estimating this figure. So, on the left, we have the households with the lowest income. On the right, we have the households with the highest income. And as you'll see, the first three groups, moving from the left, all receive higher benefits from the state than they pay in tax.

The next group pays a bit more. These are the people earning around £50,000 a year in a household. And the highest group pay a lot more in tax than they do receive in benefits. In fact , they don't receive as much in benefits as some of the other groups, and that's not just because they don't get direct payments. They also tend to opt out of things like education and health as well.

But the point is, everywhere, this imbalance, which is not explained and which is not justified by government, is giving rise to grievance. And misunderstanding is making the situation worse. Everywhere, Labour is speaking one language of neoliberalism but not talking about what is actually needed, which is a greater degree of redistribution than we've already got, because need is not being met. So, grievance exists across the spectrum.

And now let's talk about the last major crisis that I've chosen to highlight. That is climate change. At the same time as everything else is going on, we know climate change is intensifying. We only have to live through this summer to realise that. And energy security in the UK now depends on decarbonisation, but we are not seeing that happening.

We're having more nuclear power; we're having more energy being extracted from the North Sea under policies being promoted by Keir Starmer, so we end up with a crisis. We've got extreme weather. We've got risk of flooding. We've got risk to crops. We've got risk to animals. We've got risk to health. None of these is being addressed because current fiscal rules are blocking essential investment to deal with this crisis in a way that is absolutely essential if we are to have a functioning country, a functioning population, a functioning economy into the future. We've got no strategy, no policy, and no defences as a consequence of this with regard to climate change, and all of that implies one thing.

All of these crises, war and defence, inflation, recession, bond markets, grievances, and trust and climate change. All of these, and the other crises that Andy Burnham also has, which I haven't mentioned, are currently analysed through one framework. That is the neoliberal economic framework. And in that, the government is always treated like a household subject to swings of fortune, which are beyond its control. Well, that's not true. The government is in control of a great deal in this economy, and it's not like a household because households can't create their own money, and the government can.

The government can create money to fund its own spending. Debt is not a constraint on central government in the way that it is portrayed to be by the media and by government itself. And when world events happen, we are assumed to have no role, as we are US poodles. That is an extension of this household analogy. And fiscal rules are presumed to be politically untouchable because the household analogy requires that to be the case.

And so every major problem that we have appears insoluble as a result. They're insoluble because we've chosen to make them so. We chose to create the crises. Now we are choosing not to address them because we tell ourselves it's impossible to do so. But in this impossible situation, something has to break.

We have crises. We cannot solve them using the policies that created them. A different understanding of government finance is required. We have to recognise that a currency-issuing government can create the money it spends. It can tax to manage inflation and reduce inequality as a consequence of that spending, and borrowing is not an issue of concern. It is a matter of supplying savings products to an economy that wants them.

Therefore, we should be talking about a very different economic framework, which starts by abandoning fiscal rules and saying, "Money is not our constraint. Real resources and productive capacity are." The debate we need has to start with different assumptions. We can't solve the problems we have by using the old failed assumptions, which created it.

If that's the case, we have to also make clear that we must address the underlying assumptions that have given rise to Britain's economic failure.

We have to end the wealth extraction from most people in this country, which has been going on for decades. The rent that is extracted literally through payments for property, and the rent that is extracted through excessive interest rates.

We have to end the curse of financialisation that has weakened productive investment.

We have to end the property and finance domination of the economy.

We must end the fact that too much tax is borne by those who are in work and on consumption. Tax must now be paid by those who control land and wealth.

We must tackle weak productive capacity by creating permanent new ways in which money can be found to fund investment.

And we must fund public services that end grievance.

All of that requires massive structural economic reform.

Investment rules should replace fiscal rules.

Wealth and land should be taxed more effectively.

The state must direct productive investment via ISA savings and pension savings.

The energy transition must become our industrial strategy.

And tax should reduce inequality rather than exacerbate it, which, too often, at present, it is doing.

Services must be improved.

And monetary policy must serve the country rather than fight it, which is what is happening at present.

Burnham has to understand these challenges. Whether he does is open to question. The Treasury orthodoxy remains deeply entrenched inside the current Labour government. Has he managed to avoid that? I don't think so because he once served as a Treasury minister. I suspect he's drunk the Kool-Aid. I suspect he believes in what the Treasury thinks.

But we need to hope that he can change, and we need the media to change its attitude as well. We need to talk about the fact that we have to change our society if we are going to live better. And if we are going to manage the global crises that are not going to wait for our politics to have an impact upon us, if we don't do anything.

Our success, Andy Burnham's success, and the country's success depend upon changing our economic model, and unless Burnham does that, he will fail.

He's taken a long time to get to Downing Street, but his prospects aren't good unless he's going to use the chance he's being given to fundamentally change the way in which we are governed.

If he doesn't, it will be another nail in the coffin for Labour, the people of this country, this country as a whole, and maybe our democracy, which will be under threat from the far-right as a consequence. That's how important this is.

That's what I think. What do you think? There's a poll down below. Let us have your comments, and please like this video if that's what you do. Share it, and if you'd like to buy Tom and me a coffee, that would be great.

Poll

 Loading ...