UK chancellor of the exchequer John Healey said the optimism Andy Burnham’s new Labour government was seeking to restore had to be earned through fiscal discipline, in a major speech in advance of his budget next month.
“Today I want to talk about the politics of hope,” Healey said in his address to the Labour Party conference in Liverpool on Monday, echoing the can-do rhetoric the new prime ministerial team is seeking to promote. Healey said that would be earned “through fiscal discipline, through good work, through strong industries”.
Healey’s appearing against the backdrop of preparations for his fiscal set piece on October 28th, for which the chancellor is drawing up a package of tax hikes and spending cuts to stabilise the UK public finances after a surge in borrowing costs driven by the continuing US-Iran war.
The budget marks a high-stakes moment for Healey and the prime minister, who are having to caveat the boosterism that’s driven their poll bounce since Burnham became leader to a tougher message of hard choices and economic realism.
“The prime minister and I are in lockstep that we will meet the fiscal rules,” Healey said, adding, “That commitment is so important. There is n othing progressive about losing control.” He characterised Reform UK leader Nigel Farage as “Liz Truss with a Bitcoin account”.
The extent of the challenge continued to deepen on Monday, as UK government bond yields rose in line with European and US peers, following an increase in oil and natural gas prices. The move was led by more interest rate sensitive bonds, with UK two-year yields up as much as five basis points to 4.91 per cent.
Higher borrowing costs compared with his predecessor Rachel Reeves’ last fiscal statement in the spring are the chief driver of the predicament facing Healey, who is estimated to have lost about half of the £23.6 billion (€27.3 billion) buffer he inherited from Reeves against the government’s main budget rule. A key decision he and Burnham face next month is how far they go to rebuild that buffer to keep investors on side.
“Gilt markets wouldn’t react well to falling headroom,” said Emma Moriarty, portfolio manager at CG Asset Management, referring to the government’s margin against meeting its fiscal target. “Know that £20 billion is fine and £10 billion is not fine.”
Labour’s conference has been marked by a series of eye-catching new spending proposals from Burnham, particularly the expensive idea of a social care service that is free at point of use, which Burnham has suggested could be funded by new taxes after the next election. Burnham also announced a new equity loan programme to help first-time buyers, an announcement that caused shares in home-builders such as Barratt Redrow and Taylor Wimpey to surge on Monday. – Bloomberg
