Leading industry commentators assess the new Chancellor’s priorities, from managing the public finances to encouraging greater participation in investing.
John Healey’s somewhat surprise appointment as Chancellor yesterday, has been met with a cautious response from experts across the financial services profession. As speculation continues around this new Burnham Premiership and his government’s approach to tax, pensions and public spending, leading experts have shared their reactions with us as to what Healey’s arrival at the Treasury could mean for advisers, savers, investors and the wider economy.
On the appointment of John Healey as Chancellor, Shaun Moore, tax and financial planning expert at Quilter said:
“The UK tax system has become increasingly complex and subject to constant speculation. John Healey’s challenge is not just balancing the books but creating a stable environment where people can plan for the long term without worrying that the rules will change again tomorrow.
“For savers and investors, the real test will not be the appointment itself but the policies that follow. One of the more encouraging developments in recent years has been the growing recognition within government that the UK needs a stronger investment culture. Too much wealth sits in cash when it could be helping individuals build long-term financial resilience while supporting economic growth. While we have not agreed with every proposal designed to achieve that goal, the broader ambition of encouraging more people to invest for the long term is absolutely the right one.
“The government faces some difficult fiscal choices and there will inevitably be scrutiny of taxes, pensions and savings. However, there is a clear distinction between reform and constant tinkering. The repeated rumours before recent Budgets about possible changes to pension tax-free cash show how speculation alone can drive uncertainty and influence people’s financial decisions. This can create confusion, discourage long-term planning and ultimately undermine confidence in saving and investing.
“With speculation over tax changes, including a wealth tax, already high in advance of the Chancellor even being appointed, his priority should be to restore confidence among savers and investors. While any government must ensure the tax system remains fair and sustainable, reforms should be carefully considered to avoid unintended consequences that deter investment, reduce economic activity or ultimately raise less revenue than intended.
“The UK has now had six Chancellors in just over four years. Frequent changes at the top of the Treasury can make it harder to pursue a consistent long-term strategy, with each Chancellor inevitably bringing different priorities and areas of focus.
“If Healey can combine fiscal discipline with a commitment to policy stability and continue the push to make long-term investing more accessible and attractive, he has an opportunity to strengthen both the public finances and the financial wellbeing of UK households. Improving participation in investing remains one of the most effective ways to help people build wealth over time, and we hope that remains a priority under her leadership of the Treasury.”
Richard Carter, head of fixed interest research at Quilter Cheviot:
“Andy Burnham has opted for what is arguably a safe pair of hands for Chancellor in John Healey. Shabana Mahmood was deemed the favourite, but Healey brings Treasury experience and is a sign that Burnham will respect the bond markets as a check on his radicalism, rather than plough ahead with significant changes that could unsettle the fiscal position. This is important after his comments on the flexibility available within the fiscal rules.
“Burnham has made it clear he will take an interest in Treasury matters so will want to be able to steer the direction of economic policy and see less resistance for what could still end up being a fairly radical agenda. Indeed, Burnham will need a pliant chancellor if he is to drive through the change that voters are desperate for, yet whether that is Healey remains to be seen, especially given his departure from Starmer’s government. Healey’s previous Treasury experience should keep bond markets calm for now, while the spectre of Liz Truss and the lettuce continue to play in the minds of politicians terrified of a repeat. Keeping up appearances between the two will be crucial if Labour is to stand any chance of recovering in the polls.
“What Burnham and Healey need to continue focus on is growth. Burnham has said he wants ‘good growth’ in all areas of the country, although at this stage the nation is crying out for any kind of sustained economic growth. Healey has been supportive of additional borrowing ringfenced for defence spending, but data out later this week will likely paint a difficult picture of the challenges facing this new government. Borrowing and spending has soared, employment remains weak and inflation sits above target – the Office for National Statistics will confirm all three remain the case later this week.
“Without a change to the fiscal rules, which in itself would be a difficult sell to markets, the options are limited for Burnham and Healey. Spending cuts are unlikely to feature in a Burnham premiership, which means tax rises will be back on the table when the Budget comes along in the autumn. We have seen the damage such speculation and policy can have on business confidence and thus the UK economy, so that period will need to be carefully managed. Burnham is in his honeymoon period for now, but by the Autumn he may just find the problems that brought down Keir Starmer have failed to disappear.”
William Marshall, Chief Investment Officer, Hymans Robertson Investment Services (HRIS) says:
“The appointment of John Healey as Chancellor was a surprise for many, given Shabana Mahmood was reported to be heavily linked to the job. Gilt yields started to fall slightly on Tuesday morning but overall, the reaction has been fairly muted.
“Healey had previously pushed for extra defence spending in his previous role in Cabinet as Defence Secretary. Investors will be eager to hear from him to understand what kind of Chancellor he will be. Andy Burnham seemed to commit to the existing fiscal rules on Monday. But mention of using “any flexibility within them” pushed gilt yields up slightly yesterday. So far, Burnham has mentioned several policies without confirming how they will be funded. This morning’s energy bills VAT announcement is supposedly funded from scrapping the ID scheme, but other Labour MPs say the scheme was never funded.
“Investors will now be looking ahead to the Budget this autumn. While a date has yet to be confirmed, it’s likely to become the next major focus for investors as the new government begins setting out its policy agenda. Burnham has discussed trying to end the ‘briefing wars’ in politics. If he can manage to contain the damaging speculation leading up to the previous Budget that would be welcome.”
Mike Coop, Chief Investment Officer EMEA at Morningstar Wealth, comments on the outlook for UK government bonds given Healey’s appointment saying:
“The early signals from an Andy Burnham government suggest higher taxation, increased public spending and potentially some additional borrowing. However, the gilt market has already priced in a buffer for this and continues to look attractive compared with many international peers.
“Any meaningful rise in borrowing is likely to be limited by two factors. First, the fresh memory of the gilt market’s blowback to unfunded spending under Liz Truss. Second, Chancellor John Healey’s experience of working with private capital to fund infrastructure projects during the Blair era, which may encourage a more balanced approach to public investment.”
On the appointment of John Healey as Chancellor, Oliver Faizallah, Head of Fixed Income Research at Raymond James, comments:
“Healey is a sensible choice given his experience in the Treasury, however markets will be nervous of his fiscal control, seeing as he quit as defence minister because he wasn’t allowed to spend as much as he wanted to. He has acknowledged that fiscal control is a priority, and it is to be seen how any increases in defence spend will be funded. Burnham has hinted towards flexibility within the fiscal rules, which could mean increasing borrowing – so long as it is being spent on an asset of equal value.
“Nonetheless, even if increase in spending comes with an increase in assets that would be favourable to GDP growth, the market will likely put a premium on required lending (and gilt yields could very well increase). For now, I suspect a reasonably muted reaction from the gilt market until plans around spending become clearer. There will be reassurance from Healey’s Treasury experience, offset by nervousness around his ambition to spend on defence.”
Adding her reaction, Anna Macdonald, Investment Strategy Director at Hargreaves Lansdown said:
“John Healey’s appointment as Chancellor brings valuable experience and a degree of continuity at an important moment. Having served in the Treasury before, he will be seen as a relatively safe pair of hands, but both markets and households will now be looking for greater detail in the days ahead and, ultimately, at the Budget.
“The priority should be a credible, investment-friendly plan for economic growth, alongside clarity and stability on tax. Constant speculation, including around capital gains tax, risks making people more cautious about moving their money from cash into long-term investments, at precisely the moment when Britain needs more people to invest for their future.”
Susannah Streeter, Chief Investment Strategist at Wealth Club said:
“There’s been a cautious welcome on markets to John Healey’s appointment as Chancellor, taking control of the UK’s fragile finances. Former Defence Secretary John Healey was a Treasury minister in Gordon Brown’s government, and there’s an expectation he’ll very much be playing second fiddle to Andy Burnham when it comes to leading economic policy, singing from the same song sheet on decentralisation and backing regional industrial bases.
“But the immediate focus will be on the military implications of his appointment. Having resigned from government over the lack of a roadmap to meet NATO commitments of defence spending reaching 3% of GDP by 2030, attention will now turn to how quickly he might be able to find more funding to bolster the defence investment plan. Shares in military contractors BAE Systems, Rolls Royce, QinetiQ and Melrose were all higher in early trade, indicating investors expect the chancellor will be a bigger backer of defence than his predecessor. There will be cautious optimism to his appointment across the armed services. Having spent months making the case for higher military spending, Healey has a detailed understanding of the capability gaps facing the armed forces and the demands of a far more dangerous geopolitical environment. It comes at a highly timely moment, given reports of live-firing weapons exercises by a Russian warship off the Plymouth coast. The service chiefs are likely to believe they now have a Chancellor who understands their concerns more fully and may be more willing than his predecessor to set out a credible pathway towards spending 3% of GDP on defence.
“However, he’s also inherited responsibility for balancing the nation’s books, and the question will be whether he can reconcile his long-standing support for higher military spending with the government’s fiscal rules, which require debt to be falling as a share of the economy by the end of the Parliament. Finding room for defence while also funding infrastructure, social care, employment programmes and measures to boost growth could prove one of the defining challenges of his time at the Treasury.
“It also puts the question of tax rises back front and centre to fund these demanding requirements, especially with the VAT cut to energy bills, with speculation about increases in capital gains tax and further changes to the top rate of income tax likely to intensify. However, investors should resist the urge to drastically alter portfolios in an attempt to get ahead of potential tax changes. History shows us that rashly switching and ditching assets based on speculation can lead to unnecessary transaction costs, trigger premature tax liabilities and, crucially, miss out on the power of long-term compounding. Timing the market is hugely difficult, and time in the market is what counts most.”
