This week’s budget, the first of Prime Minister Andy Burnham’s government, will aim to reduce the cost of living and deliver growth and jobs. It faces a major challenge: much of what impacts both these objectives is set abroad.
I have previously argued for an international form of Burnham’s ‘Manchesterism.’ This ‘International Manchesterism’ should recognize that global forces are inseparable from local outcomes. Therefore, domestic priorities will be achieved only if the government recognizes and puts to use the two-way link between the domestic and the international.
Its success can be measured by applying the ‘Makerfield Test’ (a reference to Burnham’s constituency in northern England) to foreign policy, which provides a framework for assessing whether the government’s international choices tangibly improve life in Britain’s communities. The test has several key pillars including economic security, energy resilience and rebalancing investment towards underserved regions.
The budget is where those pillars meet the public finances. Burnham has promised better public services and lower bills. But these rest on global gas markets, food and fertiliser supply chains, and investor confidence.
In this budget, Chancellor John Healey should therefore treat geoeconomics not just as context, but as a key fiscal variable. The budget cannot deliver on the cost of living, growth or jobs through domestic tax and spend alone.
Cost of living: energy and food
Energy resilience is central to the Makerfield Test, and household energy is where the exposure is most visible. Currently, electricity prices in the UK are set mainly by gas prices, leaving the UK more vulnerable to global price spikes than many comparable countries.
Ofgem, the UK energy regulator, lifted the price cap by about £60 a year to £1,723 in October as the Iran war drove up wholesale gas. Analysts now forecast a further 16 per cent rise in energy bills from January.
The prime minister wants to break the link between energy bills and international gas prices. That will take years, which is why the budget must start the work now.
Food has received far less attention. The Food and Drink Federation expects food inflation to pass 6 per cent by mid-2027. It cites energy costs driven by the conflict in the Middle East, drought and El Niño. Fertiliser, which is made using gas, adds to this pressure.
Food and energy also shape how households perceive inflation, foods prices especially, as Bank of England research shows. A spike in either can keep interest rates higher for longer.
Growth and jobs: capital and barriers
Growth needs investment, and long-overlooked British regions in particular could benefit from international investment.
But this depends on the cost of borrowing. A global bond sell-off pushed the 30-year gilt yield briefly above 6 per cent this month and ate into the chancellor’s fiscal headroom, which may yet shrink further. This raises borrowing costs and squeezes the room for the public investment on which growth plans rely.
The budget is also being set out in a period of global economic insecurity. Britain’s largest partners are raising economic barriers and deploying economic leverage. The US has embraced tariffs. The EU is strengthening its economic and trade defence mechanisms. China has leveraged its dominance of rare earths while also pushing its exports aggressively.
Each of these moves changes the terms on which UK firms invest, trade and hire. Achieving economic security, the Makerfield Test’s first pillar, now requires factoring in these partners’ choices as well as market volatility. This applies to the budget too.
Recognizing the link
The Treasury tends to treat all this as background to the forecast. Traditionally, the Office for Budget Responsibility models the sensitivities, the numbers are adjusted, and policy carries on.
That worked when global markets were calm, and cooperation with traditional allies could be taken for granted. Neither holds now.
The Iran war has shown how global developments rapidly impact UK households and the national debt via inflation and interest rates. Costlier energy and food push up inflation, inflation pushes up rates, and higher rates raise the cost of capital that growth depends on.
The budget therefore needs to put geoeconomics at its centre. It must build resilience against shocks Britain cannot prevent while also signalling a path to growth that investors can price.
Five recommendations for the budget
This week’s budget should seek to measure, reduce, share and capitalize on Britain’s international exposure. Five measures will help achieve this.
1. Set targets to reduce exposure
The budget should measure Britain’s international exposure and set targets to reduce it. It should publish a short statement alongside the budget that details how finances and household budgets are sensitive to global borrowing costs, gas prices and food import prices.
This should include measurable targets to bring that sensitivity down over this parliament. This becomes the yardstick against which the other measures outlined here are judged.
2. Cut energy bills by reducing gas dependence
The budget should take three measures to cut household energy bills by reducing gas dependence.
It should move the remaining quarter of the Renewables Obligation’s cost to general taxation and also review other policy costs still levied on electricity bills, making electricity cheaper relative to gas.
It should also bring forward spending under the £15 billion Warm Homes Plan, prioritizing insulation in the least efficient homes.
And it should secure gas storage. By one estimate, Britain holds around 12 days of gas storage, compared with 89 in Germany. Its largest site, Rough, could close next spring without a deal. This should be prevented.
Crucially, all of this should be classed as investment that reduces risk, protected within the capital budget (rather than treated as short-term relief), and co-financed through the National Wealth Fund wherever possible.
3. Protect food supply against the next fertiliser shock
Britain’s last large ammonia plant, at Billingham, closed in 2023 because UK gas prices made it uncompetitive. Fertiliser is now made from imported ammonia sourced at global prices.
The budget should fund a strategic fertiliser reserve large enough to see farmers through a season of disruption. It should also use the National Wealth Fund to support low-carbon ammonia production linked to the UK’s hydrogen projects.
4. Build economic security
The budget should scale up the £50 million critical minerals fund announced last year to fund a stockpile of minerals most exposed to supply chain disruption of export controls.
This could be done via expanding UK Export Finance guarantees to diversify minerals supply for British manufacturers across more countries. And it should set UK carbon border levy to protect British industry while exempting partners that do price carbon comparably, starting with the EU.
5. Treat UK credibility as an asset
Multi-year spending plans are already standard for government departments, but there is a gap in specific commitments that generates uncertainty for investors. Defence is the clearest case.
The chancellor has deferred a path to higher defence spending to next year’s spending review. Setting out that trajectory, and how it will be funded, will remove a major source of uncertainty.
Beyond the budget
The budget cannot achieve these objectives alone. Some of the most important and complementary steps fall to diplomacy in the following months.
The UK-EU summit on 20 November is a chance to secure the linking of emissions trading systems, strengthening British exporters and putting the focus on energy and food supply.
Canada’s proposed Defence, Security and Resilience Bank offers a way to share defence costs.
And the UK’s upcoming G20 presidency offers the ideal platform to strengthen shared resilience on energy markets, food and fertiliser security, and sovereign debt.
None of this is a distraction from the cost of living or from growth. It is how both are delivered. A budget that recognizes and reduces the UK’s exposure to global forces is sound economics and good politics. This way, the Treasury can pass the Makerfield Test and deliver for British people.