Can the City make friends with Healey?
For the second time in history, the Labour party has recruited a former defence secretary by the name of Healey to become chancellor.
The first, Denis Healey, ended up going cap-in-hand to the IMF for a bailout in 1976 after the UK endured rocketing inflation, soaring borrowing and surging unemployment. So the bar has been set pretty low.
The second, John Healey, was a surprise appointment, and there are more than a few Westminster hacks with egg on their face who confidently predicted a Mahmood chancellorship right up to the last moment. Healy II enjoys a slightly better economic inheritance – albeit with plenty of pitfalls.
There are reasons to think the City favoured Healey as one of the best (or least worst) options. A Bloomberg poll of execs last week found Healey was the second most popular pick for the job, behind West Streeting but well ahead of Mahmood and Miliband.
Healey is not untested at the Treasury. He previously served as economic secretary and then financial secretary to the Treasury in the Blair government (Burnham became chief secretary to the Treasury under Brown).
Browsing Hansard, I was struck by one particular appearance of Healey in the latter role in 2006, when he spoke about the importance of the City.
“We must preserve the innovation, flair and light-touch regulation that is the hallmark of the City,” Healey told the Commons in November that year.
“We want to safeguard our successful, risk-based and highly competitive regime of market regulation, which has helped to make London the world’s leading international financial centre.”
Healey went further, defending new powers the government had handed to the financial watchdog to “veto disproportionate regulatory changes proposed by exchanges or clearing houses…to ensure that that will not impose any unnecessary or excessive burden.”
I was gobsmacked. It is one thing to hear a Labour minister champion light-touch regulation; it is altogether another to hear they are so worried about excess rules they demand regulators intervene to stop new ones being created.
The comments deserve context. At the time, the Nasdaq had mounted a hostile takeover of the London Stock Exchange, and there were fears the City would be dragged into the regulatory aegis of the US. The government created this veto power to give financial markets some rule-making independence, as part of what was called the Investment Exchanges and Clearing Houses Act 2006.
The Commons debate also preceded the financial crash, upon which it became unfashionable for politicians of all stripes to stand up for the City.
But if Healey continues to champion the Square Mile with even a fraction of the vigour, that must surely be counted as a win – compared, at least, with what might have been coming round the corner under Miliband or Mahmood, both of whom had been eager to levy fresh taxes on financial services.
Healey II is hamstrung on three fronts. The first is his resignation from government, only a month ago, apparently because defence had got too little cash from the Treasury. As he unpacks his abacuses and tots up the sums, John Healey will have to contend with the aggressive spending demands of, well, John Healey.
The second, if the last 48 hours are anything to go by, is Andy Burnham has a habit of making policy announcements and then figuring out how to pay for them, rather than the other way around. That will mean intense pressure on Healey to balance the books and keep the bond markets onside. Already, on his first day in office, he has asked Cabinet colleagues to find savings – and things could soon get antagonistic if he doesn’t get what he asks for. Healey could face a Healey-style resignation if departments don’t get the funding they think they deserve.
The third is there is vanishingly little appetite – among the public, among bond traders or among backbench MPs – for more tax hikes. Reeves eroded much of the government’s goodwill after upping taxes, promising not to do so again, and then doing so again. At the same time, Burnham has pledged to deliver a “new economic model” for the UK in which the government will “build a new economy where we put life’s essentials back under stronger public control.” Such a wholesale transformation, if it is even remotely achievable, is far from cheap.
Gilt yields have already started to creep up as City bigwigs weigh the scale of the task facing our new Chancellor. Granted, this is no 1976 – but 2026 is no utopia, either.
Healey I managed just under five years as Chancellor, right up to the 1979 election, despite presiding over what was easily one of the rockiest economic periods of the 20th century.
In a televised interview with a young Jonathan Dimbleby in 1976, he was asked whether he was to blame for the sharp rise in interest rates that had blighted the British economy.
“I think to be honest I probably misjudged that situation,” Healey said, “but I’m not the first chancellor who’s ever made a mistake and I don’t suppose I’ll be the last.”
Healey II is unlikely to get away with a similar confession today, in a world in which the public is prepared to cut politicians a lot less slack.