Chancellor calls for ‘confidence about Britain’ despite ‘historic high’ borrowing costs

Earlier in the day, in what marked his inaugural major address as Chancellor, Healey unequivocally declared his overarching mission: to "make Great Britain growth Britain" once more. Delivering his speech at the advanced Manufacturing Technology Centre (MTC) in Coventry, a hub symbolizing innovation and industrial future, he outlined the strategic pillars underpinning his vision for national prosperity. "My defining mission as chancellor is growth, good growth in every postcode," Healey asserted, emphasizing a geographically inclusive economic expansion. He further detailed the government’s approach: "And I’ve set out today the way this government will set about it: more devolution, more public leadership and control, more investment, more innovation, more jobs." This multi-pronged strategy aims to empower local regions, foster strategic public intervention, stimulate capital injection, drive technological advancements, and ultimately create widespread employment opportunities across the UK.

Healey underscored his alignment with Prime Minister Andy Burnham, affirming they are "in lockstep" regarding the critical need for fiscal discipline. This commitment, he explained, involves maintaining a robust financial buffer within the government’s spending plans, specifically designed to mitigate the impact of unforeseen economic shocks. He cited "the sort of uncertainty that the JLR decision locally has shown" as a pertinent example, alluding to the potential ripple effects of significant corporate decisions, such as those concerning Jaguar Land Rover, on regional economies and employment. The Chancellor’s remarks came as he presented an unexpectedly optimistic assessment of the UK economy’s current trajectory, preceding the upcoming Budget. This upbeat outlook, he suggested, was bolstered by a discernible recent uptick in both consumer and business confidence, indicating a potential turning point in economic sentiment.

From Coventry, Healey articulated a "new story" for the economy, portraying it not merely as "turning a corner" but as fundamentally resilient, imbued with optimism, and "ready to seize the opportunities of new technologies and ideas." This narrative seeks to inspire confidence and project an image of a dynamic economy poised for future growth. With a critical seven-week countdown until the Budget statement on October 28, Healey affirmed the government’s unwavering commitment to a core tenet of Labour’s manifesto pledge. This pledge, originally made under the leadership of former Prime Minister Sir Keir Starmer and former Chancellor Rachel Reeves, guarantees that the government will not "increase taxes on working people." Despite intense scrutiny, Healey repeatedly declined to offer specifics on potential tax rises or spending cuts ahead of the Budget, maintaining a strategic silence. He would only state: "Staying true to our values means being honest about the need to control government spending," signaling a cautious approach to public finances while adhering to electoral promises.

Unsurprisingly, the Chancellor’s stance drew immediate criticism from the opposition. Conservative Shadow Chancellor Andrew Griffith lambasted Healey, stating: "Healey failed to end uncertainty by ruling out more tax rises." Griffith suggested that the Chancellor’s rhetoric offered little clarity or reassurance to businesses and households grappling with economic uncertainty. He further quipped that Healey "sounds increasingly like continuity Rachel Reeves," implying a lack of fresh ideas or a significant policy departure from his predecessor, thereby diminishing the sense of new leadership. Similarly, Liberal Democrat deputy leader Daisy Cooper voiced skepticism regarding the scale of the government’s regional investment, remarking: "Re-announcing £150m across the entire north of England will barely shift the dial on growth." Reform UK’s economic spokesman, Robert Jenrick, delivered a particularly scathing assessment: "Days after a market meltdown, when grip and direction are required, John Healey has revealed himself to be an empty vessel with no idea about how to rescue our economy."

In his speech from the Manufacturing Technology Centre in the Midlands, Healey reiterated his belief that the UK economy was "turning the corner." He specifically highlighted that greater devolution – the decentralization of power and resources to local authorities – would be instrumental in spreading economic growth more equitably across the entire United Kingdom. However, this optimistic outlook was tempered by recent "ructions in government debt markets," which have significantly exacerbated the pressure on already strained public finances. These market upheavals have created potential multi-billion pound gaps for the Treasury to fill, primarily driven by the escalating cost of government borrowing and the imperative to fund increased defence spending in a volatile global environment.

On Monday, Healey directly attributed the "too high" borrowing costs to a confluence of factors: prevailing global events, which have driven up inflation and interest rates internationally, and a legacy of 14 years of Conservative governance. He specifically cited the austerity policies implemented under David Cameron, the economic ramifications of Brexit under Boris Johnson, and the destabilizing impact of Liz Truss’s ill-fated mini-Budget as contributing elements to the current fiscal predicament. Healey affirmed his and Prime Minister Burnham’s commitment to balancing the government’s day-to-day spending with tax receipts, while crucially ensuring "room for manoeuvre in case of shocks." This approach aims to create a sustainable fiscal framework that can withstand future economic turbulence.

Healey’s measured and forward-looking tone stood in stark contrast to that of former Prime Minister Sir Keir Starmer, who had faced accusations of "talking down the UK economy" shortly after Labour assumed power. Starmer’s repeated warnings about the precarious state of public finances, while perhaps intended as a sober assessment, had been criticized for potentially undermining confidence. Helen Miller, director of the influential Institute for Fiscal Studies (IFS), offered a pragmatic perspective on the Chancellor’s ambitions. "Economic growth in every postcode sounds great and is something we would all love," she conceded, "I think it’ll actually be much harder to achieve in practice." Her comments underscored the significant policy and implementation challenges inherent in delivering such an ambitious, nationwide growth strategy.

During his first Prime Minister’s Questions on Wednesday, Prime Minister Burnham was himself subjected to intense scrutiny over the escalating UK borrowing costs. Conservative leader Kemi Badenoch challenged him directly, urging him to articulate a clear strategy for addressing the nation’s increasing debt burden, especially after the cost of borrowing for the UK had reached a new 18-year high. This parliamentary exchange highlighted the profound concern across the political spectrum regarding the sustainability of public finances. Following the recent period of significant volatility in financial markets, Rupert Harrison, a senior adviser at bond giant Pimco and former chief of staff to Tory chancellor George Osborne, offered a stark assessment. He characterized the UK as being treated as "guilty until proven innocent" in the eyes of fiscal responsibility by international markets.

Speaking on the BBC’s Today programme, Harrison elaborated on this critical shift in perception. He recalled that the UK historically possessed significant credibility with bond markets for its perceived ability to "get its house back in order when things go wrong." However, he lamented that the country had progressively lost this crucial credibility in recent years. He attributed this decline, in part, to the destabilizing effects of Truss’s mini-Budget, a series of government decisions to defer necessary deficit reduction, and the persistent challenge of UK inflation remaining stubbornly above the Bank of England’s 2% target since the onset of the pandemic. These factors combined have eroded investor trust, making it more expensive for the government to borrow.

As part of his broader strategy to stimulate economic activity and ensure a more equitable distribution of prosperity across the UK, Healey also unveiled a dedicated £150 million fund aimed at supporting companies in the north of England. This initiative, he explained, forms a crucial component of a wider plan to spread economic growth beyond traditional hubs. Healey detailed plans to strategically deploy public investment as a catalyst to "unlock private investment, to support our innovation economy, and to create the new jobs their areas need." The fund, drawing from capital already allocated to the British Business Bank, is designed to provide substantial investments ranging from £5 million to £15 million to the "most innovative and fast-growing firms" in the region. It is specifically expected to back promising university spin-outs and other "ambitious businesses" across the North, fostering a vibrant ecosystem of entrepreneurship and technological advancement.