Please note, the original version of this commentary was written on 13 July 2026, and it has since been updated following recent events.
Andy Burnham, the former Mayor of Greater Manchester, is now the UK Prime Minister. Although the details of any future policy agenda remain uncertain, Burnham's record in office provides some indication of the direction of travel. Burnham has described himself as both a socialist and a social democrat, although he is generally regarded as belonging to the soft left of the Labour Party.
His approach in Government, shaped by his experience in Greater Manchester, would likely see the state play a more active strategic role in areas such as transport, housing and healthcare, while private firms continue to deliver many services. A Burnham Government is also likely to place greater emphasis on regional growth, devolving more powers and funding from Westminster to cities and regions to help narrow the UK's economic divide.
Are fiscal rules under pressure?
For investors in UK Government Bonds, otherwise known as ‘Gilts’, Burnham’s stance on fiscal policy (i.e. public spending and taxation) will be key. Burnham has rowed back on comments made last September in which he suggested the UK should move ‘beyond this thing of being in hock to the bond markets’.
Wary that a shift to looser fiscal policy could result in a damaging rise in Government borrowing costs, more recently Burnham has committed to the fiscal rules of former Chancellor, Rachel Reeves [1]. These rules require that day-to-day public spending is met by tax revenues (meaning the Government is only borrowing to invest) and that net financial public debt as a share of Gross Domestic Product (GDP) is falling by the end of the current Parliament.
Burnham appears to be saying all the right things to reassure Gilt investors. His decision to seek advice from Richard Hughes, the former Chair of the Office for Budget Responsibility (OBR), also suggests that fiscal policy is likely to be formulated with the possible financial market reaction firmly in mind [2]. A repeat of the 2022 mini-budget debacle under former PM Liz Truss looks unlikely.
However, Burnham and his Chancellor will be faced with difficult decisions early on. Reports suggest that the Government will need to find a further £4.7 billion to honour its commitment to increase defence spending by £15 billion over the next four years [3]. This funding gap comes at a time when the economic fallout from the Iran war (higher inflation, weaker growth and higher borrowing costs) threatens to erode the £23.6 billion ‘headroom’ penciled in by Reeves [4]. This ‘headroom’ is the buffer against breaching the fiscal rules.
Burnham has said he would adhere to the promise Labour made not to raise VAT, Income Tax or National Insurance Contributions in its general election manifesto of 2024 [5]. With these three taxes accounting for around two-thirds of tax revenues [6], Burnham and his Chancellor would have to make significant increases elsewhere to accommodate higher spending if borrowing is not to rise.
Where, then, might taxes increase?
Burnham takes the view that the UK currently over taxes labour (i.e. people’s work) and under taxes people’s assets [7]. In this regard, he has backed reform of the current Council Tax system which he sees as regressive and benefitting wealthier homeowners over lower-income families [8]. He also supports the idea of a land value tax, a levy on the value of land itself, irrespective of the value of any buildings constructed upon it.
There has also been speculation that a Burnham government could bring Capital Gains Tax (CGT) bands more closely into line with Income Tax, an idea that has been associated with former Health Secretary Wes Streeting.
Any increase in CGT could trigger a wave of asset sales ahead of the higher rates taking effect, followed by a period of weaker transaction activity as investors defer disposals to avoid the higher tax charge.
Bond market implications
Tax reform will take time, and, with the tax share of GDP already at its highest since 1945 [9], it remains doubtful whether Burnham will be able to raise revenues enough to fully fund growing commitments in areas such as defence and housebuilding. Against this backdrop, there may be an incentive to 'game' the fiscal rules by pushing the bulk of fiscal consolidation beyond the next general election [10].
Gilt issuance could also increase significantly under a Burnham government while still remaining within the letter of the fiscal rules. Lord Jim O’Neill, former Chief Economist at Goldman Sachs and an adviser to Burnham, has called for billions of pounds of extra spending on infrastructure projects via an independent body, modelled on the OBR [11].
Precisely how such an arrangement would operate remains unclear, but O’Neill argues that there is more room for investment under the existing fiscal rules.
Even if the fiscal rules are maintained, an increase in gilt issuance could still put upward pressure on yields. Since the 2022 mini-budget crisis, investors have become more sensitive to developments in the UK's fiscal position.
Burnham will also take office at a time when global bond markets are being asked to absorb a growing supply of debt, not only from governments grappling with ageing populations and higher defence spending, but also from companies issuing bonds to finance investment in AI infrastructure.
Gilt investors could also become concerned if a Burnham Government sought to alter the Bank of England's (BoE) monetary policy remit. Louise Haigh, a close political ally of Burnham and now a key figure in his Government, has argued that "the time is right to re-examine the mandate and see whether better coordination and a greater focus on economic growth should also be included" [12]..
Any perception that the BoE's commitment to price stability was being diluted in favour of supporting economic growth could undermine confidence in the inflation-targeting framework. Investors might then demand a higher inflation risk premium to compensate for the increased uncertainty, putting upward pressure on longer-dated gilt yields.
Equity sector impact
A possible rise in gilt yields under a Burnham Government will have adverse knock-on implications for UK Corporate Bonds and certain equity sectors.
Higher borrowing costs would be a headwind for both the housing market and housebuilders. The construction sector could also be affected by Burnham's housing agenda.
Construction companies would likely benefit from his pledge to deliver the "biggest council housebuilding programme since the post-war period". However, housebuilders could face headwinds if they are required to increase the proportion of affordable housing within new developments.
In addition, any move towards a land value tax could reduce the value of strategically held land banks, weighing on the profitability of developers with significant holdings.
More broadly, Burnham's plans to favour British suppliers in public procurement contracts could provide a tailwind for domestic companies in sectors including IT, defence, professional services and other industries with significant exposure to government spending.
However, favouring suppliers on the basis of their origin rather than value for money could reduce competition, increase procurement costs and ultimately place upward pressure on public spending.
Furthermore, restricting overseas firms' access to UK government contracts could antagonise the UK's trading partners, particularly the US and the EU, increasing the risk of retaliatory measures that restrict UK firms' access to their public procurement markets.
The utilities sector could face a more challenging operating environment under a Burnham government. Burnham’s desire for greater public control of firms that provide “the essentials of life” threatens to put companies in the water and energy sectors under pressure.
Emboldened by the success of bringing Greater Manchester's public transport network under greater public control, Burnham has said he wants to apply a similar approach to the water and energy sectors.
Although full-scale nationalisation is likely to be prohibitively expensive, the energy and water sectors are likely to face tighter regulation and increased government intervention under a Burnham government, factors that are likely to weigh on profitability.
On the tax front, Burnham’s proposal to reduce business rates for small independent high-street shops and other businesses by imposing higher rates on major distribution warehouses and other large commercial sites could have significant sectoral repercussions. If implemented, the move would not only impact the UK operations of online behemoths such as Amazon, but also large UK multi-channel retailers such as Next, Tesco and Marks and Spencer [13]
Real Estate Investment Trusts (REITs, companies that own and rent out commercial property) with exposure in the warehousing sector could come under pressure as higher occupancy costs for tenants reduce rental growth potential and weigh on property valuations.
Keeping politics in perspective
What measures actually become policy under the new Burnham government will become clearer during the coming months. However, investors should remember that domestic political developments are only one of many factors shaping the performance of UK financial markets.
The outlook for UK monetary policy, together with trends in global bond markets, particularly US Treasury yields, will continue to exert a major influence on UK gilt yields. Global developments will also remain a key driver of the UK equity market, particularly as regards UK large caps.
Overseas sales account for around 80% of FTSE 100 company revenues [14], meaning that any political uncertainty that weakens the pound could provide a tailwind for the index by increasing the Sterling value of foreign earnings.
Political developments carry the potential for near-term volatility in UK financial markets and could have meaningful repercussions for certain sectors. However, a political risk premium is arguably already priced into UK assets.
UK Gilts offer inflation-beating yields for buy-and-hold investors [15], while UK equities continue to trade at a substantial valuation discount relative to their developed market peers [16]. Investors will be wise to monitor the UK political backdrop, but should not lose sight of the market fundamentals.
13 July 2026
[1] https://www.bbc.co.uk/news/articles/c0e2dl455d5o
[2] https://www.ft.com/content/5a64a8cc-2f40-42b7-bab4-a59069e4f560?syn-25a6b1a6=1
[3] https://www.ft.com/content/de59198a-767c-436c-a5af-48c3b3c0c1ec?syn-25a6b1a6=1
[5] https://www.bbc.co.uk/news/articles/c5yz9j7v0z6o
[6] https://ifs.org.uk/taxlab/taxlab-key-questions/where-does-government-get-its-money
[7] https://www.telegraph.co.uk/money/tax/news/andy-burnham-tax-manifesto/
[8] https://www.tax.org.uk/andy-burnham-s-tax-agenda-early-signals-for-a-probable-premiership
[9] https://taxpolicy.org.uk/2026/04/29/why-uk-taxes-are-rising
[11] https://www.theguardian.com/politics/2026/jun/23/burnham-adviser-government-borrowing-infrastructure
[13] https://www.ft.com/content/c6337a2e-533d-4d7e-90e9-83e3a61bbeb7?syn-25a6b1a6=1
[14] https://uk.investing.com/academy/trading/what-is-the-ftse-100/
[15] https://giltsyield.com/bond/inflation/
[16] JP Morgan Equity Strategy – July Chartbook