Burnham is about to face the cold reality of tax rises

As Britain baked during the unprecedented heatwave, Andy Burnham and his Chancellor John Healey were forced to find refuge from their stuffy Downing Street flats in No10’s walled garden.

It was there that the pair spent most evenings outside in the cooler air, talking and unwinding, while thrashing out their economic vision for the country.

Burnham’s decision last month to appoint Healey to run the Treasury blindsided most of Westminster to such an extent that few ministers know what the new Chancellor stands for and what his approach to the economy will be with a crucial Budget a little over two months away.

Indeed, one senior government minister close to the Budget discussions said they were still largely in the dark over Healey’s plans come 28 October.

Although not part of Burnham’s inner circle, the Chancellor is a senior politician whom the Prime Minister trusts. The two have known each other for years, share a strong northern outlook, and the South Yorkshire MP helped Burnham prepare for his move into national power.

But The i Paper understands that Healey has made clear that he isn’t simply loyal to Burnham – he sees his role as being willing to challenge him and tell him “no” when necessary.

The strength of the relationship has already come into sharp focus this week after the Prime Minister outlined his plans to effectively split the job of the Treasury, with Burnham wanting the hitherto all-powerful department to focus mainly on controlling the public finances.

The task of firing growth into the UK’s spluttering economy will be shared by Burnham’s new No10 North, as he aims to deliver a “huge transfer of power” out of Whitehall.

Having No10 take the lead on the Government’s growth mission means “you’ve got maximum power to unlock the blockages where they exist in the wider Whitehall system”, the Prime Minister told The Times this week.

Thus far, Burnham has been able to enjoy the new gig over the long, hot summer largely on his own terms, but already the cold, hard reality of governing is beginning to emerge.

Fresh economic figures on Friday showed an unexpected £2bn jump in borrowing in July compared with the year before, with the money being used to spend on the ballooning welfare bill. The stats came alongside lower than anticipated retail sales, underlining the gargantuan task facing Healey when it comes to setting out his Budget.

It has prompted economists to warn that the Chancellor is likely to have to hike taxes yet again, while it also raises the prospect of Burnham having to burn a great deal of his political capital spelling out how he intends to cut the welfare bill.

Unlike his predecessor Sir Keir Starmer, however, the former Greater Manchester mayor is able to rely on a sizable bank of goodwill among his backbenchers – for now at least.

One Labour MP from the 2024 intake said they were “optimistic” about Alan Milburn’s review and its recommendations on how to tackle youth unemployment, adding they expected it to be “pretty radical and practical to cracking down” on the issue.

“Whether the PLP [Parliamentary Labour Party] is ready to take the plunge remains to be seen,” the MP cautioned, before adding: “But I think a mix of spending pressures, such as defence, prisons etc, and a gentler, more collaborative style from the PM, the Chancellor and [Work and Pensions Secretary] Pat [McFadden] means there is a six to nine-month window to do some good stuff that can not just help more people to live independently and take control of their lives, but also address the political attack from the Tories and Reform that we’re increasing working people’s tax to pay for the jobless.”

But despite Burnham’s early popularity, the risk of backbench unrest once Parliament returns in a little over a week remains high. Expected welfare reforms come alongside controversial changes to immigration rules, with Labour MPs already firing warning shots in a bid to force the Prime Minister to change course.

Despite announcing a £65m funding boost for drought-hit farmers last week, Burnham also faces the fresh prospect of a rebellion from the 120-odd MPs in Labour’s rural caucus over the scale of support after a summer that has seen many farms battered by heatwaves and wildfires.

Coming so soon after an unseasonably wet winter and amid higher energy and fertiliser prices due to the Iran conflict, MPs representing rural constituencies are worried about the political fallout of farmers going to the wall.

“Burnham has a real risk with the farming lot,” one MP warned. “Especially ahead of big votes on welfare and immigration.”

The Prime Minister is also under pressure from another section of his MPs to forge closer ties with the EU, which is pushing to rearrange a summit with the UK this autumn.

Closer economic ties with the bloc are seen as one of the only ways the UK can solve its elusive growth problem, but No10 are eager not to be seen to be undoing Brexit.

Andrew Lewin, the former Chair of the UK Trade and Business Commission, said he wanted Burnham to prioritise a UK/EU youth mobility deal, insisting it would be viewed by the Treasury as a “pro-growth measure”.

“While many of us in the PLP would like to see UK/EU ties strengthened much further, getting this deal over the line this year would be a very good first step,” he added.

Another more immediate headache for the Prime Minister is the contentious prisoner early release scheme.

The PM has ordered Justice Secretary Alex Norris to find a way of preventing the two men convicted of killing PC Andrew Harper from being released early under the Government’s new prison regime. He expected to set out its position when Parliament returns on 1 September.

Officials are looking at a range of options, including a plan to pause the release plans and conduct a rapid review of the release system before it comes into force.

That could bring together judges, prison governors, probation officials, lawyers and Ministry of Justice analysts to examine alternative models, including giving prison governors greater discretion over release and systems in which release thresholds change according to the pressure on the prison estate.

But Burnham will be keenly aware that a review alone will not solve the issue of prison overcrowding and a decision on where to draw the line will have to be made.

Yet while the outlook remains gloomy for the new Prime Minister, there is an optimism within Whitehall that has not been felt for some time.

A government source who was retained by Burnham from Starmer’s administration said this summer was the first time they “felt positive about the direction of travel for a very long time”.

“Andy is different because he’s a prime minister who has strong beliefs, he’s got a worldview,” the insider said.

“So unlike Keir, who basically wanted a fully packaged decision presented in front of him, but didn’t really come with any priors, Andy knows what he thinks. That makes it different because he will have a point of view and he’s a prime minister who has things that he wants to get done. But that’s what we’ve been missing.

“I’m impressed by the No 10 that they’re building, it’s a much more professional outfit, it’s also a much nicer outfit and that makes a big difference. I guess in the final days it’s like a bunker in there anyway. But it does feel like a breath of fresh air.”