“Hope Again” was the slogan of the Labour Party Conference, and the mood was noticeably more optimistic than last year. Over the summer, Labour has enjoyed a “Burnham bounce” in the polls, and a focus on public control of essentials has helped to define the new government.
But the honeymoon may not last. The economic outlook remains bleak and household living standards are under renewed pressure. Governments around the world have shown how hard it is to recover politically from inflationary shocks.
This week we suggest that the economics and the politics point in the same direction: protect household incomes now, or both growth and support for the government will stall. The question is whether the government's offer of hope can match its rhetoric, or whether voters will once again be left to cope.
Alfie Stirling argues that weak productivity, demographic pressures, high housing costs and restrictive interest rates risk leaving households worse off over this parliament. The result is a cycle of economic stagnation, where low living standards hold back consumption-led growth. Since the 2024 election, the government has focused on long-term investment and supply-side reform. Both are necessary, he suggests, but they are not enough if families lack the spending power to buy what the economy produces.
The war in Iran has made a difficult outlook even worse. The Joseph Rowntree Foundation projects that average household disposable incomes after housing costs could fall by 1.7% – around £740 a year – between 2024/25 and 2029/30. Before the conflict, incomes were projected to rise by just 0.5%. The revised outlook would make this the worst parliament for living standards on record, with the poorest households facing the steepest falls.
Persuasion UK’s Steve Akehurst argues that “cost of living populism remains this government’s best bet” if it wants to avoid the fate of the many incumbents who have lost office over rising costs. It offers a “tantalising prospect” of aligning a new macroeconomic strategy with an offer built on ‘affordability politics’.
That helps explain why Burnham's early announcements have landed. Measures like rent freezes and cheaper transport can be modest in economic impact while still making a government's priorities visible. The political test is less about the size of any single measure. It is whether people feel their incomes are protected, they can afford the essentials and the government is on their side.
At this week’s Labour Party Conference, the Chancellor’s economic pitch centred on stability, growth and investment, while maintaining the government’s commitment to sound public finances. His message was that economic credibility is a precondition for sustained investment. The Prime Minister, meanwhile, promised greater public control of energy, water, care, transport and housing, as part of a long-term plan to drive down the cost of essentials.
The long-term economic vision Burnham set out in his speech has been broadly welcomed. Analysis from Persuasion UK suggests that when members of the public were shown clips from the speech, Burnham’s favourability rose significantly, with sections on public control and social care performing particularly well.
But what about this winter? The focus on tackling endemic problems may be tested by a tough few months ahead. With today’s price cap, yearly energy bills for a typical household hit £1,723 and are expected to rise again to around £2,000 on 1 January. Analysis by the New Economics Foundation suggests that without further intervention, energy bills in 2027 will be £200 higher than their 2022/23 peak. Donald Trump’s threat to ban diesel exports could push inflation higher still.
Against this backdrop, civil society organisations coordinated by the Cost of Living Action coalition are calling for immediate, universal relief on energy bills. They also want additional targeted support for those most in need.
The Prime Minister ruled out an early election last week, but speculation in Westminster persists. Whenever the election comes, no government wants to face voters with living standards falling. That piles on the pressure for this October’s Autumn Budget.
JRF has proposed a funded package of £18.4bn of income support. This includes rent caps and relinking Local Housing Allowance to local rents; uplifting Universal Credit and introducing a Protected Minimum Floor; and introducing an affordable energy allowance for all households. The package could be fully funded through capital gains tax reform and applying National Insurance to investment income. That would avoid breaking Labour's manifesto pledge not to raise income tax, National Insurance or VAT. For the majority of the public, it would more than reverse the negative impact on living standards of the Iran war and the fall under the last parliament.
But will we see any of this in Burnham’s first Budget? There are plenty of policies on offer to give households more immediate breathing space, while also supporting a broader economic and electoral strategy. Positive Money is proposing a windfall tax on banks which could raise £19bn a year; “enough to cover the cost of Andy Burnham’s VAT cut from electricity bills (£850m), the £2 cap on bus fares (£500m) and the business rates cut for pubs, clubs and music venues (£100m) more than 13 times over.”
The design and messaging matter as much as the scale. In Alfie Stirling’s words, support needs to be "targeted at those families with the highest propensity to spend rather than save - families with the lowest income and greatest need - whilst also remaining sufficiently broad-based to shift economy-wide demand and sustain political support for the strategy beyond one parliamentary term.”
The key question for the coming weeks is whether the Autumn Budget will be ambitious enough to allow the majority of households - and Labour’s voters - to cope with the rising cost of living and “Hope Again.”
Stat of the week
The government could raise £26bn by hiking capital gains taxes and applying National Insurance to other areas of income in the upcoming Budget. - CenTax
A new generation of council homes. Shelter has released a policy report setting out more detail on how the government can meet the Prime Minister’s ambitions on council housing. It suggests a package of measures including changes to the fiscal framework to unlock finance for councils to build, and a national council housing mission.
Scaling up investment to reindustrialise the UK. A number of pieces have focused on the role of investment in delivering the government’s mantra of ‘good growth in every postcode.’ These include a comprehensive overview of the role of public finance bodies in a new report from the UCL Institute of Innovation and Public Purpose, as well as a shorter article from Professor Mariana Mazzucato and a blog from Finance Innovation Lab’s Nick Bryer.
From public control to public ownership. We Own It has launched a new report on public ownership, setting out what this means in practice, how it could be achieved and what benefits it would deliver. It covers a wide range of essential services, with a particular focus on the urgent steps the government could take to return water to public ownership.
How to deal with supply shocks. Bank of England Monetary Policy Committee member Swati Dhingra has written in the Financial Times on the need for a more resilient economy in the face of rolling supply shocks. She suggests that it is always preferable to take preventive and protective measures to deal with such shocks, rather than responding with fiscal or monetary policy after the fact.
