By William Schomberg, Kate Holton and Elizabeth Piper
LONDON, Sept 7 (Reuters) – Britain’s new finance minister John Healey, a former trade unionist who has backed light-touch rules for banks, must soon decide on the right balance for a budget that could be the defining moment for Andy Burnham’s premiership.
Bond investors want to see how the 66-year-old advances Burnham’s ambitions — from house-building and social care to defence — while keeping fiscal discipline.
Ahead of his debut budget on October 28, Healey makes his first major speech on Monday on how to accelerate the world’s fifth-biggest economy, a challenge that has eluded his predecessors for 20 years.
Against the backdrop of rising borrowing costs globally, the budget is also likely to include some tax increases.
People who have worked with Healey, the son of a prison physical education officer, say he is decisive and good at communicating complex issues.
“Events will be raging around him and he’ll keep his cool and his courtesy. He’s got that gift,” said John Monks, a former head of the Trades Union Congress, who hired Healey as his communications officer in the 1990s.
“I wanted someone who could make the economic argument, someone who was capable of not just selling a story but was also able to have discussions with the Bank of England and the Treasury. All those things, he could do,” Monks said.
Healey risked his dream of becoming a Labour lawmaker when he and Monks clashed with party leader Tony Blair and his communications chief Alastair Campbell over union reforms.
“He went toe to toe with Blair and Campbell, as did I, and they didn’t proceed with the proposal,” Monks said.
FROM THE MINING BELT TO THE CITY OF LONDON
As a junior finance minister in the 2000s, he showed he was no Labour traditionalist, telling lawmakers of “the importance of a light-touch, principles-based approach” to rules for the City of London.
More recently, as defence minister in Keir Starmer’s government, Healey decommissioned two warships and retired a drone system to spend the money elsewhere.
“There’s no question that he knew what the right things were to do,” Kevin Craven, chief executive of aerospace and defence trade body ADS, said.
But in June Healey quit as defence minister, dealing a blow to Starmer who resigned as prime minister 11 days later.
Healey told Starmer: “You have been unable and the Treasury has been unwilling to commit the resources that the nation needs to defend the country at this time of rising threats.”
But when media reported last month that he would not immediately raise defence spending to the levels he previously sought, opposition lawmakers accused Healey of hypocrisy, prompting Burnham to say a timetable would come in 2027.
It remains to be seen how hard Healey will push for the extra money to raise defence spending to 3% of economic output by 2030, a level he said was needed when he resigned.
Former British army chief Richard Dannatt said Healey was unlikely to create his own power base at the Treasury, calling him a “relatively old-fashioned, professional Labour politician who understands the hierarchy.”
While unlikely to be “a revolutioniser” at the Treasury, he would probably be able to overcome internal opposition and find the money he wants for defence, Dannatt said.
THE BOND MARKET AND THE BUDGET
Healey’s first test will be to compile a budget that does not upset the bond market — an experience that ended Liz Truss’ short-lived government in 2022 — but offers help to voters with an election less than three years away.
In her first budget two years ago, then finance minister Rachel Reeves raised taxes on employers, souring relations with business and leading to a hiring slowdown.
Healey will need to show progress on Burnham’s priorities including giving more powers to local areas while finding money to make up an immediate £5 billion shortfall in defence spending.
That job is being made harder by Burnham’s commitment to the mechanism for state pension increases and rising welfare spending.
But in contrast to Reeves’ warnings of tough times ahead, Healey has sought to sound upbeat about Britain’s economy.
Burnham’s government rushed out small domestic power bill cuts, a bus fare cap and a tax cut for some hospitality firms when he took office.
The head of a major UK consumer-facing business applauded Healey for saying he was as worried about the cost of doing business as the cost of living.
But two decades on from his last stint at the Treasury, Healey acknowledges how much harder it is now with the debt burden three times bigger, writing on social media: “conditions then were so benign compared with what this country, this government and people and businesses now face.”
($1 = 0.7392 pounds)
(Writing by William Schomberg; Editing by Hugh Lawson)
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