Andy Burnham faces hugely difficult decisions on the size of the military and the welfare state if he replaces Keir Starmer as prime minister.
One of Britain’s closest European allies is already navigating these twin spending headaches – offering some potentially valuable lessons to Team Burnham if they make it to Downing Street.
Germany is embarking on major benefit cuts while ramping up defence expenditure to levels unseen since the Second World War.
One of Germany’s left-wing parties has promised a “scorching hot socialist summer” of protest over plans to cut unemployment benefit, pensions and health insurance.
Germany’s ‘painful’ new austerity cuts
The German government – a coalition of Chancellor Friedrich Merz’s centre-right Christian Democratic Union (CDU) and the centre-left Social Democratic Party (SPD) – announced a “new basic security benefit” earlier this year.
This new unemployment benefit has much harsher work requirements. No savings have been formally set but the CDU claimed reforms could reduce welfare spending by billions of euros annually.
A plan to remove German citizens’ free health insurance coverage for non-contributing spouses was set out in April. Payments for medicines and hospital stays will also rise. These changes are aimed at saving €20bn a year.
Germany’s statutory pension insurance – the equivalent of the UK state pension – will be cut back to provide only “basic cover”, announced Merz, who has said the country had been “living beyond its means” and is facing a €172bn (£148bn) hole over the next decade.
“Painful” austerity measures are needed to ensure younger Germans have hope of future prosperity, the Chancellor has argued.
Both the CDU and SPD parties have been doing poorly in the polls, said Professor Dan Hough, an expert on German politics at University of Sussex. Welfare cuts are likely to make them even less popular.
Some parts of German press may back cuts to unemployment benefit, just like in the UK, said Hough. “When it comes to cutting medical insurance and pensions, that is much more difficult.”
How will Burnham cut the welfare bill?
Burnham insisted he is “not squeamish” about the need to reduce the welfare bill during his Makerfield by-election campaign.
The prime minister-in-waiting ruled out “crude” short-term cuts, suggesting the reduction could happen by supporting more people into work.
But some painful choices on work conditionality may still have to be made, which could be unpopular with the Labour left.
Former minister Alan Milburn’s youth unemployment review looks set to recommend changes to personal independence payment (PIP) disability benefit so it is tied to job searches for the first time.
Burnham may have to make a “similar argument” to Merz about the need to balance the books for future generations, according to Professor John Ryan, an expert in EU politics.
Merz is a “managerial bureaucrat” with poor communication skills “which makes it difficult for him to convincingly argue that certain sacrifices are necessary for the good of the nation”, said Ryan, of the Munich-based economics network, the CESifo Group.
Labour MPs are hoping that Burnham’s charisma can help him sell any welfare reforms that are needed.
“[Burnham] would face the same challenge [as Merz],” said Ryan. “Insurgent parties on both the left and the right are poised to capitalise on any unpopular measures he may be forced to implement.”
Burnham should be aware that left-wing parties can suffer a greater political backlash than right wing-parties when it comes to welfare cuts, said Hough.
Merz’s CDU is not expected to suffer politically as much as the SPD – the equivalent of the Labour Party. “The left can be very, very hard on the SPD whenever it gives any ground on welfare cuts. It’s a disaster for them,” said Hough.
Kathrin Gebel, a politician with the SPD’s rivals Die Linke (the Left Party) has already promised “a scorching hot socialist summer” of protest over welfare reforms.
Why pension changes spark ‘resistance’
Burnham is under pressure from some Labour MPs to end the UK’s “unsustainable” triple lock state pension promise.
Some Labour figures argue the rising sums could be better used on working-age people, describing it as a matter of “intergenerational fairness”.
However, Burnham recently told The i Paper it would be damaging to “tear up” Labour’s current manifesto commitment to keep the triple lock. “[Burnham] says that now, but he could shift in future,” one Labour MP said.
German pensioners are a powerful voting block, just like in Britain. Scrapping the triple lock in the next Labour manifesto could be politically painful.
“Like here [in the UK], some pensioners might accept there’s an intergenerational justice argument, but they look at their own pocketbook and that prompts resistance to change,” said Hough.
Germany’s trick for extra defence spending
The CDU and the SPD will be keen to separate benefits cuts from its huge military expansion, said Dr Matthias Dilling, a German political specialist at Trinity College Dublin.
A special fund of more than €500bn (£431bn) will go on defence and infrastructure between 2025 and 2029. It should raise defence spending to 3.5 per cent of GDP by the end of the decade.
A special exemption to Germany’s normal “debt brake” rules was created for this extra borrowing and spending. This is the equivalent of Labour’s “fiscal rules” which enforce strict limits on borrowing.
“The Germans have been well-served by lifting these debt brake restrictions – they needed to spend more on defence,” said Dr Ed Turner, a leading expert on German politics at Aston University.
Dilling added: “Linking the two reforms [welfare cuts and defence spending] opens you up to be attacked by both the left and the right. The special exemption from the debt brake allows you to separate the arguments.”
Over in the UK, defence secretary John Healey recently quit after Keir Starmer sanctioned a small increase that would take defence spending from 2.6 per cent to 2.68 per cent of GDP.
Burnham appears to back greater spending on Britain’s military and he has previously suggested that fiscal rules could be changed to allow extra spending – just like in Germany.
In recent days he has promised to stick to the fiscal rules. However, some of his economic advisers have suggested they should be ripped up to allow more borrowing to invest.
Andy Burnham’s team was approached for comment.
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