Challenges facing companies as UK prepares for new Prime Minister

The resignation of Sir Keir Starmer after two years as prime minister has opened the door to 10 Downing Street for former Labour cabinet minister and Greater Manchester mayor Andy Burnham, who won the Makerfield by-election in the north of England last week.

Burnham remains the favourite to replace Starmer as prime minister and could take the helm of both party and country uncontested, although he may yet face challenges from other contenders.

It will likely mean a significant cabinet reshuffle and policy shifts in a number of key areas as the new leader looks to regain government momentum in the wake of challenges from the Conservatives and Reform.

Andrew Henderson, public policy expert at Pinsent Masons, said for markets, businesses, international partner countries and bodies alike, the immediate focus would be on who succeeds Starmer.

“The key issue will be whether a new administration governs largely as a continuity Labour government with a refreshed political presentation, or whether the leadership transition marks the beginning of a more substantive ideological and policy shift,” he said.

“The period between now and the close of nominations is therefore likely to be critical – both in determining the nature of the contest and the direction of the government that emerges from it.”

The front runner

The broader political significance of the transition is considerable, coming amid a wider debate about Labour’s future policy direction and electoral strategy in the wake of Starmer’s decision to stand down.

Turning around the perceptions of weak economic growth, low productivity and constrained fiscal headroom will prove an immediate challenge for the new leader, particularly if there are changes to the make-up of their cabinet.

Leadership nominations open on 9 July – ahead of the summer recess starting on 23 July – with candidates requiring the backing of 81 MPs plus 5% of the constituency Labour parties or three affiliates, with Burnham the front runner.

Previously Labour MP for Leigh from 2001 to 2017, he held a number of senior posts under Tony Blair and Gordon Brown in the previous Labour administration, including health secretary and culture secretary, along with a spell as chief secretary to the treasury.

After twice unsuccessfully challenging for the Labour leadership, Burnham was elected mayor of Greater Manchester in May 2017. In the role he became one of the most recognisable metro mayors in England, championing transport reform, economic development, policing, and greater local control over public services.

He developed a reputation as an effective communicator and advocate for the North of England, challenging successive governments over regional inequalities and the concentration of political and economic power in Westminster, along with an ongoing conflict over tier restrictions imposed on Manchester during the 2020 coronavirus pandemic.

Challenges the new PM faces

Burnham’s background in promoting regional growth in Manchester may factor into policy changes, but there will be a need to balance investment with maintaining fiscal credibility – particularly while trying to restore business confidence, stimulate private sector investment and build on the international trade agreements struck by Starmer’s government.

Elsewhere, defence spending and translating the Strategic Defence Review into a funded plan to strengthen military capability will be a challenge, one which saw Starmer lose two ministers in the days prior to his resignation – particularly against rising costs in social care, benefits and the NHS.

The drive for energy security – highlighted by the recent Middle East conflicts and the ongoing war in Ukraine – will also be an early item on the new leader’s agenda as they try to balance industrial needs and investment with net zero commitments.

Mark Ferguson, a public policy expert with Pinsent Masons, said predicting potential policy and political change would not follow a predictable path over the next few weeks and months. Organisations working within these and other impacted sectors should start examining their strategies and planning approaches now, with an eye on the leadership race, he said.

“The leadership changes - as well as ongoing geopolitical events, fiscal pressures and regulatory interventions - will materially alter the operating environment for businesses,” he warned.

“Many organisations focus on responding once proposals have been published, but the most significant influence is often exercised much earlier in the policymaking process.

“Governments, regulators and legislators frequently seek evidence, technical expertise and market insight when designing policy. Organisations that engage constructively can help policymakers understand practical impacts, implementation challenges and unintended consequences, resulting in better regulation and more effective outcomes for both business and society.”

“Scenario planning will help organisations identify plausible future developments - rather than attempting to predict the future, effective scenario planning allows businesses to test strategic resilience against a range of political and regulatory outcomes.”