Senior Labour figures privately criticize Healey's budget preparations

Thirty-year UK gilt yield reaches 6% for first time since 1998

Senior Labour figures are privately voicing unease about Chancellor John Healey’s approach to his first budget, scheduled for October 28, as volatile global markets and rising energy costs complicate the fiscal environment. The criticism, voiced on the sidelines of Labour’s party conference in Liverpool, focuses on what government insiders and other Labour figures describe as a lack of detail in Healey’s recent conference speech about investment, growth, and possible tax increases.

The chancellor’s work has been made significantly harder by the global bond sell-off, which continues to raise the cost of government borrowing, and by increasing energy prices as the US war with Iran continues. The yield on 30-year UK government bonds hit 6% on Thursday for the first time since 1998. Barclays raised some of its mortgage rates for the second time in a week, underlining the impact of these market moves on UK borrowers.

Healey’s party conference speech, which centred on the theme of reindustrialisation, was warmly received by Labour members in Liverpool. But government insiders and other Labour figures cast doubt over the lack of policy detail on investment and growth, or any pitch-rolling for possible tax rises. One senior Labour politician said: “I missed any real sense of growth and investment, which Rachel [Reeves, the former chancellor] often emphasised, despite her faults — when business leaders speak to me, that’s what they were waiting to hear, and we got nothing.” A Labour MP lamented that on tax and spending, Healey had gone little further than reiterating the fiscal rules: “It was Rachel’s speech delivered by John,” they said.

One senior Labour insider said they believed the chancellor was risking a fresh market shock on October 28 if he was not willing to be clearer about his approach to taxation, headroom, and spending. Market moves since the spring are expected to have wiped out at least half of the £24bn headroom, or buffer, Reeves had built against Labour’s fiscal rules. Healey is believed to be minded to accept a slimmer margin, but he gave no indication of his likely approach in his speech, aside from repeatedly stressing the need for discipline. Rebuilding the headroom in full could require significant tax increases or spending cuts.

Prof Arun Advani, director of the centre for the analysis of taxation at the University of Warwick, said: “The chancellor didn’t give us a sense of how he’s thinking about these issues. It was a speech where at the end of it we didn’t come away understanding more about the direction of policy, or what he wants to do with the Treasury.” There are concerns, too, about how Healey will tough out demands to say when the UK will spend 3% of GDP on defence, having resigned as defence secretary three months ago over the issue.

Treasury sources stressed that Healey was intimately involved in some of Andy Burnham’s significant conference announcements, with 40 officials working at the department through the weekend on the details of the triple lock pension changes. They also pointed out that the chancellor opened the door to a renewed attempt to overhaul welfare for the young unemployed — a fraught issue for Labour — and stressed his determination to present an optimistic picture of the UK economy. Healey’s team is committed to avoiding the rollercoaster of leaks that preceded Reeves’s budgets, instituting military-style “black boxes” — learned from Healey’s time at the Ministry of Defence — for different teams to work within to avoid accidental leaks.

The narrow focus of the budget is expected to rule out radical changes to property and capital gains taxes previously mooted by Burnham supporters including the first secretary, Louise Haigh, though reports that Healey is calling in bank bosses next week have reignited speculation of a windfall tax on the sector. Treasury sources said the team remains committed to a “tightly focused” budget, though they concede that offering voters more “breathing space” on energy costs had become more urgent.

Several Labour figures pointed to Burnham’s last-minute decision to appoint Healey as one factor making the chancellor’s job harder, giving him little time to build up an effective team before the budget. Rav Athwal, an economist and author of Labour’s 2024 manifesto, has only just joined Healey as a senior special adviser. Reeves’s chief economic adviser, Neil Amin-Smith, was poached by No 10. One Treasury insider said: “He’s slow to get through his boxes and it’s hard to get meetings in the diary because he needs time to prepare before each one. It all feels a bit underpowered.” But another Labour figure defended him: “John got virtually no notice he was getting this job. He’s not an economist. He didn’t have two years in opposition to prepare. It’s early days and the Treasury is there to support him. He’s very capable — just give him time.”

Labour MPs fear that failing to take more drastic action, particularly on surging energy prices, could leave voters nonplussed. One MP said: “The budget is only a few weeks away. He may want it to be low key but it will send a massive signal of our intent.” Others are concerned that Burnham’s focus on long-term issues such as social care and public ownership of utilities will consume political airtime without helping with the immediate crisis.

Alfie Stirling, director of policy and insight at the Joseph Rowntree Foundation, said: “The focus on ‘room to breathe’ now, alongside the focus on taking greater control over the costs of essentials over the longer term, is the right strategy for government. But families are currently facing the worst parliament on modern record for real incomes and they simply cannot wait three years for government to grip this in the here and now.”