Shabana Mahmood expected to be named Andy Burnham’s chancellor

The home secretary is the frontrunner for the role ahead of ‘risky’ Ed Miliband, according to senior Labour figures

Shabana Mahmood has emerged as the frontrunner to become Andy Burnham’s chancellor after a fierce briefing war over the prospect of Ed Miliband being appointed to the powerful role.

Senior Labour figures with knowledge of Burnham’s thinking told the Guardian they expected the home secretary to be moved to the Treasury amid concerns that Miliband would become a target for criticism of the government.

However, sources in Burnham’s team continued to insist that no final decision had been made, adding that his cabinet would be appointed only after he enters No 10 on Monday. The prime minister-in-waiting was out of Westminster on Wednesday for a family event.

The row over who takes over from Rachel Reeves as chancellor has divided Burnham’s allies for weeks. Supporters of Miliband argue he is the only candidate who could challenge Treasury orthodoxy while sharing the next prime minister’s vision for the UK economy.

But with big business sceptical and several of the largest unions opposed to the move, the energy secretary’s critics within the party – who have said appointing him could unsettle the markets – have told the Guardian they believed they had been successful in preventing the appointment.

Some MPs had also warned that giving the second most powerful job in government to the politician who led Labour to a general election defeat in 2015 could prove a risky choice with the electorate, regardless of Miliband’s popularity with party members.

Sources told the Guardian that Louise Haigh, one of Burnham’s closest allies, had been having qualms about Miliband’s appointment. “The access talks have certainly focused minds on the economy and the challenges of the autumn,” they added.

The senior figures with knowledge of Burnham’s decisions suggested Miliband would be moved to the Foreign Office instead, potentially with the additional responsibility of first secretary of state, a role regarded as on a par with deputy prime minister. His older brother, David Miliband, had also been tipped for the role.

They suggested Wes Streeting, the former health secretary who quit over Keir Starmer’s leadership, could take over from Mahmood as home secretary. Although he is seen as being on the right of the Labour party and is tough on crime, he is softer than her on immigration.

There were concerns within the party, however, that Burnham could change his mind over such a key decision as his chancellor – a cabinet role more than any other that sets the direction of the government. “It feels like Ed is the thing to spend your political capital on. Otherwise what’s the point?” one Labour MP said.

Burnham’s team insisted decisions over the makeup of the cabinet were mostly speculation, adding that he was keeping it “very tight”, with only Haigh and James Purnell, his chief of staff, thought to be in the loop.

“We’re in a world where people are being briefed into or out of jobs, by people who say they know but probably don’t,” one source added.

The pound rallied and UK government borrowing costs fell slightly on Wednesday after reports that Mahmood was the favourite to enter No 11, with the yield on a 10-year bond dropping 0.06 percentage points during the day.

City investors had expressed unease over Miliband, fearing the installation of one of Labour’s most ideologically driven senior figures would have led to a radical shift in economic policy funded by higher levels of government borrowing.

In contrast, Mahmood has little record of taking strong views on economic issues, but was regarded in the City as a more centrist option given her hardline stance on immigration. She also has a reputation in Westminster for getting to grips with tough departments and standing up to the civil service when needed.

Labour insiders suggested the home secretary, who served as a shadow Treasury minister under Miliband when he was Labour leader, was further to the left on economic issues than she was on social ones, which could make her more aligned with Burnham on areas such as fiscal devolution and bringing utilities under public control.

Mahmood is understood to have spoken to Burnham in recent days and discussed wider political strategy beyond the Home Office, including the economy, but her allies insisted she had not been told she was going to the Treasury.

Mahmood’s first big task, if she is confirmed as chancellor on Monday, would be to draw up an emergency cost of living package. This could include targeted support for energy bills, a rent freeze and a cap on bus fares.

She would then start work on an autumn budget, with Burnham telling the footballer-turned-podcaster Gary Lineker on Wednesday that he may “ask for a little bit more” in tax as he refused to rule out imposing a wealth tax.

“I do believe we need a greater sense of fairness and people feeling that things are being done in the right way and a fair way,” he said.

“But at the same time, you know, I don’t want to be perceived as somebody who’s coming in with grudges and agendas and going to just immediately find or demonise one group or create a new way of dividing people.”

However, he would not rule out making such a move in the future, he said, adding: “At some point that might be having to ask for a little more. But, you know, those decisions are not for now. They’re for another day.”

Allies of Miliband angrily accused his enemies in the party of coordinating a campaign to sabotage his prospects, insisting he should remain a contender for the role of chancellor and that Mahmood would not go down as well with the markets as some believed.

“You need someone with the requisite experience who doesn’t have their own power base,” one minister said. “I am also not sure the markets will ultimately like her; she is a protectionist.”

An MP who is a close supporter of Burnham said: “Not appointing Ed I think would show that Andy is less rooted than we believed him to be, that he is too susceptible to pressure even when he is not in the job yet.”

Another senior MP said: “Ed is the mainstream choice in the parliamentary Labour party because he has the experience and the vision to drive a credible progressive agenda through HM Treasury. Also we have one budget to get this right and we need a big hitter with economic experience to get in there and deliver.”

Burnham, who takes over as Labour leader on Friday and as prime minister on Monday, is expected to bring back Angela Rayner, the former deputy prime minister, and Lucy Powell, the deputy Labour leader, to the cabinet.

Haigh is expected to be given a role at the heart of government, potentially chief secretary to the prime minister or running the Cabinet Office. Jonathan Reynolds, the chief whip, was said to be hopeful of returning to his old brief as business secretary, while Miatta Fahnbulleh and Anneliese Midgley, both close allies of Burnham, are expected to get jobs.

Allies said the likely appointment of Mahmood, and the reported appointment of Graeme Cooke as No 10 policy chief, both signalled that Burnham wanted to seize the domestic policy agenda.

One former colleague said: “Appointing Graeme is a sign of a prime minister who is going to take much greater charge of his policy output. This is Andy saying: ‘I’m the guy that makes the decisions and you are the people who find ways to implement them for me.’”