John Healey’s first major speech as Chancellor parroted the usual Labour lines: the woes of austerity, the joys of the state and, of course, the villainy of Liz Truss, writes Julian Jessop
John Healey’s first major speech as Chancellor today was expected to be full of political knockabout rather than serious economics – and he failed to surprise. Mostly he just rehashed the poor arguments made by Andy Burnham a week ago.
Three points make this clear.
The ‘Truss penalty’
First, the claim that there is still a “Truss penalty” in the cost of UK government borrowing is both lazy and silly.
Even if you agree with Healey that the mini-budget was the key driver of the spike in gilt yields in 2022 – ignoring global factors, the UK’s greater exposure to the energy shock, and decisions made by the Bank of England – that was four years ago.
I have yet to meet a single bond trader who still blames Liz Truss for the current problems. If anything, there is some recognition that politicians, including the Conservatives, have learned the lessons and will not make the same mistakes again.
In the meantime, the Labour government has already had two years to restore any fiscal credibility lost under the Tories. If Healey’s predecessor has indeed rebuilt the foundations, why are UK yields still such an outlier?
Public control
Second, there was more guff about the benefits of increased “public control”.
Of course, neither Burnham nor Healey really mean “public control”. The markets can already deliver that – think of the “public” as customers and investors – with some additional regulation where competition is weaker.
Instead, they are talking about “state ownership” and “state direction”. This means that ministers with zero business experience and who are in hock to the trade unions will now be running companies and trying, yet again, to pick winners.
Moreover, it is not clear how this is supposed to help with the cost of living. State ownership could just mean lower productivity and more taxpayer subsidies; someone still has to pick up the bills.
More broadly, prices have risen much faster in sectors with heavy state intervention than in those where market forces operate more freely.
The government should focus on allowing markets to increase the supply of housing, energy, food and so on, and stop adding to the burden of tax and regulation on businesses. Sound money is crucial too.
The austerity obsession
Third, Healey parroted Burnham’s lines about “austerity” and Brexit. Criticising the spending restraint of the early 2010s is tone deaf when markets are already concerned about the new government’s fiscal plans.
As for Brexit, this was merely a bump in the road compared to the much bigger shocks since the vote to leave the EU – notably the UK’s relatively high energy costs.
If Labour politicians really want to blame a female Conservative Prime Minister for the UK’s current woes, it makes more sense to pick Theresa May, who ushered in “net zero”, rather than either Liz Truss or Margaret Thatcher.
That said, John Healey’s speech was not all bad. In particular, the upbeat tone contrasted with the doom and gloom when Rachel Reeves first took the helm.
There are indeed some signs that the UK economy is “turning the corner”. This is largely because the fallout from the crisis in the Middle East has not been as bad as feared, at least not yet. But the mood of businesses and consumers has improved.
Unfortunately, there are more shocks in the pipeline. The new Chancellor rightly gave nothing away about the upcoming Budget. But Burnham and Healey now look set to double down on the bad choices made by Starmer and Reeves: more spending, more borrowing, more regulation, and even more tax. This is unlikely to end well.