There has been much speculation about whether there is a driving ideology behind Andy Burnham’s premiership. A new paper by some of his key advisers may give us a clue. The Mainstream thinktank’s The Productive State: A Framework for Manchesterism takes Burnham’s experience in Manchester as a basis for reframing the economy. With a third pillar to complement the market and the welfare state, it is a radical attempt to reverse the damage caused by 40 years of neoliberal economics.
Surrendering control
The core argument of the new paper, from advisers closely aligned with Burnham, is that private markets have been allowed to operate in areas where they are inappropriate. Public provision, managed by the state to meet social need, has been replaced with private ownership, geared to profit. We can all see the damage in energy, water, housing, transport and care.
Since the 1980s, the state has progressively surrendered public control of this infrastructure. Britain’s overlapping crises of living costs, weak economic performance and strained public finances all stem from this long‑term privatisation of essential services.
This has been a “unique experiment” among advanced economies. Unlike its comparators, the UK state has handed its critical infrastructure to private companies, whose obligations are to shareholders rather than citizens. The result has been underinvestment, fragmented systems and a “privatisation premium”, which channels money upwards from households and businesses to shareholders and bondholders.
And so, we have an unaffordable cost of living, instability in public finances, and reduced economic performance. Private providers raise prices and underinvest, while the state and society bear the rising costs of poverty, ill‑health, welfare spending and weak productivity.
The privatisation contract
This deal has been expensive. Private investors demand much higher returns than the state needs to pay. Corporate profit accounts for a large slice of recent electricity bills. Complex holding‑company structures and special purpose vehicles, together with shareholder dividends, feed costs through to users’ bills. And the proportion of water bills that goes on debt interest is three times higher in England than in Scotland, where water is publicly owned.
Privatisation has fragmented integrated systems, separating electricity generation from transmission and trains from tracks and operators. This has raised transaction costs, reduced resilience against emergencies and undermined coordinated investment. Meanwhile ownership of critical infrastructure has moved overseas.
Regulation has failed. In a free market, competition keeps prices under control and secures quality. But services like water are natural monopolies, so we needed regulators. But in order to provide the confidence private investors require, the regulators have had to prioritise “stability” over resilience, control of prices and quality.
And a “fiscal escalator” has driven public spending up without tackling the underlying problem, as we see in housing. Between 1945 and 1980, extensive council housing construction kept rents low and housing benefit costs negligible. But now, the £15bn a year that the state pays to private landlords through housing benefit makes no difference at all to the supply of housing.
In this world, government attempts to redistribute, regulate and reform planning will always be defeated by the constraints of the privatisation settlement. That is because the assets Britain most needs – long‑horizon, modest‑return, highly coordinated infrastructure – will always be unattractive to private investors.
The three pillars
We are used to seeing the economy in two parts. The market provides goods and services and sets prices, while the welfare state taxes and redistributes. This report adds a third tier.
This tier, the “productive state”, would have an active role to secure a foundation of essentials (housing, water, energy, transport, etc.) – organised not around private profit, but around affordability, universal access, environmental sustainability and worker welfare. And it would be out of the hands of private capital.
This safety net for individuals would provide a stable base for a thriving market economy, where competition would drive efficiency and enterprise. Each tier would depend on the one below. Entrepreneurs can take genuine risks because failure would not mean destitution. Workers could move between jobs and cities because the essentials are guaranteed.
The table shows how the report defines the sectors in the foundation tier, the reasons for including them and the proposed role of the state.
Public corporations, not nationalised industries
The paper argues that previous models of nationalisation eventually failed because government meddled, using them as tools of economic management. So it proposes that these sectors should be managed by independent public corporations. Their mandate would be the public good, not shareholder return. They would own and operate capital in these sectors and participate actively as builders and providers, not just regulators or redistributors.
To protect them from short-term political tinkering, they would be operationally independent. Because they would be underpinned by an ultimate guarantee of state backup, they would be able to borrow in their own name at much lower rates than the private sector, without alarming the bond markets. And they would be freed of the private sector requirement to deliver financial results quarterly.
They would also prioritise resilience over financial return in ways that shareholder‑driven firms cannot. When the Iran war provoked an energy crisis, we had fewer gas reserves than other countries because the Rough storage facility had been closed by Centrica because it was not paying its way commercially.
This approach would insulate households and firms from global price shocks and maintain domestic productive capacity in key supply chains.
The Manchester model
These ideas are consistent with what Andy Burnham has done in Manchester, where public control of key services has delivered lower fares, expanded routes, restored connectivity and strong city‑region growth. Far from weakening the market economy, it recognises that without a foundation of services which the state owes to its citizens, the market cannot function effectively. Without places to live and transport to get to work, there is no economy.
The Productive State could scale up and expand the Manchester model: energy and water under national public corporations, housing and transport at city-region scale, care and local services through municipal providers.
These are ideas from a thinktank, not a statement of Burnham’s intentions. But they are consistent with what he has done in Manchester. And it is certainly a more radical and coherent statement of the role of the state under a Labour government, than we have had for a long time. The next few months will show if this is where Burnham wants to take us.
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