Andy Burnham ’s landslide win of the Makerfield by-election has Britons wondering if he could really be the next prime minister and, if he is, what that might mean for their finances.
We’ve all seen politicians say they plan to do one thing, and ultimately be incapable or unwilling to make it happen – so it remains to be seen if Mr Burnham in No 10 would be able replicate the success he has seen as mayor of Greater Manchester.
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But, based on what he has previously said on the economy, The Independent takes a look at how your pocket might be impacted in the event of a change in leadership.
Mortgages
The first thing to understand, or at least accept, is that money markets are a minefield of cause and effect.
So here’s an example: In September last year, Mr Burnham said: “We’ve got to get beyond this thing of being in hock to the bond markets.”
What does that mean? Well, it might run something like this: gilts, also called UK government bonds, are sold off if the markets don’t like a new economic plan (or lack thereof), which lowers the price but raises the yield. That yield is effectively the cost for the government to borrow money and spend on things like infrastructure and public services, so the amount the government must pay in interest is increased.
If it also sees overseas investors lose faith, the value of the pound could fall, making imports more expensive and having an inflationary effect – or, if a Burnham government rapidly increases public spending and causes a surge in demand for products and services, that can also be inflationary.
When prices are rising too fast (high inflation), the Bank of England (BoE) can step in to consider raising interest rates, and if the market smells that, it will far more quickly send swap rates up – they are basically future expectations of interest rate movements, and the tool which lenders base the price of their mortgage products on, even if the BoE base rate doesn’t move.
When swap rates rise, so do the headline interest rate figures on mortgages , as evidenced during the Iran war .
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Chancellor choice counts for much
Whoever ends up as a PM, their choice of chancellor will also have an impact on how the bond markets react, including any promises to stick to the current fiscal plan, which Mr Burnham has previously stated he will.
Current chancellor Rachel Reeves is seen as stable, consistent and predictable – all things the market likes.
“Burnham’s choice of chancellor if he becomes prime minister could have a major impact on bond markets,” said Dan Coatsworth, head of markets at AJ Bell.
The market likes Rachel Reeves, who is seen as a stable figure on the economy (Getty)
“Bond investors like boring and dull – they want someone who has a plan where the maths stacks up and they stick to it. Former transport secretary Louise Haigh is seen as one of Burnham’s closest allies, but a fraud conviction could stop her from being the country’s numbers person. Ed Miliband is also being touted as a potential candidate for chancellor and would bring considerable experience from prior senior political roles.”
Oxford Economics senior economist Edward Allenby pointed out that the speed of change might mean Mr Burnham has little choice other than to run with what is already planned.
“There’s little to suggest Burnham’s team has a detailed policy package already in the works,” he said. “Developing that package in time for the autumn Budget will be made even harder if Burnham has to win a prolonged leadership contest first.”
Property costs
Mr Burnham has previously suggested stamp duty and council tax should be reformed, with a Land Value Tax (LVT) replacing stamp duty on property sales – something he wrote about in the Guardian back in 2010.
The idea is it makes buying more accessible for those with lower financial backing to get on the ladder, while it’s also harder to evade paying later on.
“It won’t be a top priority but a move to tax the asset rather than the transaction appears to be on Burnham’s radar,” said Tom Bill, head of UK residential research at estate agents Knight Frank.
“He supports a proposal by campaign group Fairer Share, which wants to replace stamp duty and council tax with a levy equivalent to 0.48 per cent of a property’s value.
“The simplicity of the proposal is commendable and scrapping stamp duty make sense given how it hinders social and economic mobility, but the proposal in question feels too overtly political. Shouldn’t the sole aim be to maximise tax revenue?”
It won’t be popular with everyone, obviously.
Labour party candidate Andy Burnham (Peter Byrne/PA) (PA Wire)
“Under the plan, landlords, developers, overseas buyers and second-home owners w…
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