Andy Burnham has appointed John Healey as his Chancellor – a surprise decision after Shabana Mahmood and Ed Miliband were both widely tipped as being in line for the job.
No 10 said that the new Prime Minister and Healey – who previously worked in the Treasury under Gordon Brown – “share the same outlook” on making the economy work better for working people.
Though details of Healey’s policy won’t emerge in full until his first Budget, likely in the autumn, there are indications of what the former defence secretary could prioritise in his new role.
The now-Chancellor resigned from Sir Keir Starmer’s Cabinet last month in a row over defence spending, so it would be a surprise if the issue wasn’t near the top of his in-tray.
He also brings experience beyond the Treasury and the Ministry of Defence, having previously served as a housing and local government minister, as well as shadow housing and health secretary.
Here is our analysis of what Healey in the Treasury might mean for different policy areas…
Tax
Healey brings little personal track record on tax to the Treasury, so the clearest guide to what happens next comes from Burnham himself – with Healey installed to deliver it.
Harry Woolman, of Validus Risk Management, said Healey “is widely regarded as a safe pair of hands who is likely to deliver on Burnham’s agenda rather than pursue an agenda of his own”.
His first move was a tax cut – VAT removed from domestic electricity bills from October, saving the average household around £45 a year, funded by scrapping the previous government’s digital ID scheme.
But that opening pledge is already facing questions after ex-minister Darren Jones, who was previously responsible for digital ID, claimed on social media the policy hadn’t been fully funded. The Government is yet to confirm how this affects that VAT plan.
Further down the line, the picture is less clear. Burnham has said he wants a “proper look” at raising the frozen £12,570 personal allowance, but Sarah Coles, head of personal finance at AJ Bell, said the cost makes that a hard sell.
“Every £100 increase in the personal allowance costs around £1bn, so raising it to match inflation since the freeze could cost around £35bn,” she said, arguing that the bill would need to be met from tax rises or cuts elsewhere given the commitment to existing fiscal rules.
Burnham has also declined to rule out a wealth tax, previously telling Gary Lineker’s podcast that “at some point” the public might be asked to “give a little more”.
Options on the table could include a 2 per cent levy on assets over £10m, which backers say could raise up to £24bn a year, and lowering the mansion tax threshold from £2m to £1.5m, raising close to £800m.
And Healey is under growing pressure to make his view on this issue clear, and quickly.
Shaun Moore, tax and financial planning expert at Quilter, said his priority should be to “restore confidence among savers and investors,” warning that reforms should be carefully considered to avoid “unintended consequences” that deter investment or ultimately raise less revenue than intended.
Economy
On the economy, Healey’s early message has been one of continuity rather than change.
Responding to ONS figures on Tuesday showing borrowing fell to £16bn in June, he said: “Fiscal control is the first duty of any Chancellor. It is mine.”
Whether that holds is the real question hanging over his tenure, and markets have so far reacted with caution.
Gilt yields – the interest rate the Government pays to borrow money, reflected in the price of UK government bonds – rose to their highest level in around two months in the hours after his appointment, while the pound and FTSE 100 both fell.
This indicates that investors are not yet convinced his spending plans will add up within the fiscal rules he has promised to keep – that the UK government cover all day-to-day spending with tax revenues and ensure that public debt is falling as a share of the economy.
Moore said the test for Healey “will not be the appointment itself but the policies that follow,” describing his task as “not just balancing the books, but creating a stable environment where people can plan for the long term without worrying that the rules will change again tomorrow.”
He does at least inherit a reasonable hand to play.
Analysis by Public First and the Prosperity Alliance found Healey and Burnham take office against the third-strongest economic backdrop of any prime minister in the last 50 years, behind only Tony Blair and Theresa May.
Benefits
Welfare has been one of the most fraught issues of this Labour government, with plans to cut billions from sickness and disability benefits provoking a near-rebellion by backbench MPs last year.
In response, ministers shelved the toughest changes to personal independence payments (PIP), pending a review by Sir Stephen Timms.
What replaces those plans now sits with Healey as much as Pat McFadden, who remains Work and Pensions Secretary and has previously said he is “not ruling anything out.”
Burnham has said only that he will not make “crude” or immediate cuts to benefit levels, pointing instead to getting young people into work.
There are signs that Healey may be sympathetic to a slower approach. Responding to George Osborne’s Budget a decade ago, he called a £12bn round of cuts a political “choice,” not a necessity. The comments are old, though, and he has made no firm statements on welfare as Chancellor.
The Timms review is due to report by the end of the month, having already found the PIP system “not working” and calling for “bold and radical” change.
Defence
Healey resigned as defence secretary last month after rejecting an offer of £13.5bn to fund the defence investment plan, telling Starmer the Treasury had been “unwilling to commit the resources that the nation needs.”
His successor, Dan Jarvis, secured a further £1.5bn, taking defence spending to 2.7 per cent of GDP by 2030 – still short of the 3 per cent Healey wanted.
He now has power over the funding gap he once fought over and lost, and faces the challenge of how to pay for it.
Starmer ruled out one option for finding that money, dismissing “defence bonds” – debt securities that allow citizens to directly fund military operations – as “just borrowing by another name.”
But Lord Dannatt, the former head of the Army, said Healey would “probably want to look at” the idea regardless, telling Times Radio he would need to “work very, very cleverly” to find funding otherwise.
Burnham and Healey have signalled they are on the same page on defence, suggesting a repeat of the row is unlikely.
Healey said the pair would “meet our commitments on defence to our international allies,” and Downing Street said Burnham told Nato’s Mark Rutte the appointment was “a signal of his intent.”
How much extra defence spending the new Chancellor will actually secure remains unclear.
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