Britain's new finance minister Healy faces a major budget test: Can fiscal discipline and growth promises be compatible?

The Zhitong Finance App learned that Britain's new Chancellor of the Exchequer, John Healy, is facing a difficult economic problem: how to launch a budget that not only promotes housing, social security, and national defense agendas in the context of rising global borrowing costs, but does not trigger panic in the bond market.

Healy, 66, will deliver her first major speech this Monday, explaining plans to “accelerate” the world's fifth-largest economy. This challenge has overwhelmed many former finance ministers over the past 20 years. The market generally expects that this budget will include some tax increases. This budget will also be a critical moment on Prime Minister Andy Burnham's path to power.

From trade unions to finance ministers: Healy's defense promises face a reality test

Healy worked in the trade union field for many years. John Monks, the former president of the Confederation of British Trade Unions, who hired him as a communications officer in the 1990s, recalled: “I need someone who can explain economic arguments, not only tell stories, but also talk to the Bank of England and the Treasury — he can do that.”

Healy is not a traditional member of the Labor Party. When he was a junior minister in the Ministry of Finance at the beginning of this century, he advocated “light-touch, principle based” supervision of the financial industry. During his tenure as Secretary of Defense in the Stammer administration, he resolutely retired two warships, eliminated a drone system, and transferred funds to other fields. Kevin Craven, chief bonaru executive of the Aerospace and Defense Trade Association, commented: “There is no doubt that he knows what is right.”

However, in June of this year, Healy resigned as Secretary of Defense, causing quite a blow to Stammer. Stammer stepped down as prime minister after 11 days. In her letter of resignation, Healy told Stamer: “In this time of growing threat, you are unable and the Treasury is unwilling to commit the resources needed to defend the country.”

Burnham officially succeeded Stammer as Prime Minister of the United Kingdom on July 20 and appointed Healy as Chancellor of the Exchequer. However, when the media reported last month that Healy would not immediately raise defense spending to the level he had previously sought, opposition lawmakers accused Healy of inconsistent words and actions, prompting Prime Minister Burnham to come up with a schedule for 2027.

It is still unknown how hard Sheely will try to raise defense spending to 3% of economic output by 2030 — the level he claimed was necessary when he resigned. Former British Army Commander-in-Chief Richard Dennett believes that it is unlikely that Healy will establish his power base in the Ministry of Finance, calling him “a relatively traditional and professional Labor Party politician who knows hierarchical order.”

Dennett said that although Healy is unlikely to become a “innovator” of the British Treasury, he may be able to overcome internal objections and secure the necessary funding for national defense.

Countdown to the budget: the bond market is watching closely, and voters are eagerly awaiting

For Healy, the first test is to prepare a budget that will not disrupt the bond market, and at the same time provide practical help to voters in the context of a general election to be held in less than three years. In 2022, bond market turmoil brought an end to the short-lived Tras administration.

Two years ago, then-Finance Minister Rachel Reeves raised employer taxes in her first budget, causing relationships with the business community to deteriorate and recruitment to slow. Healy needs to move forward with Burnham's agenda while trying to fill the impending £5 billion gap in defense spending. Burnham promised to raise national pensions and increase welfare spending, making this task even more difficult.

Unlike Reeves, who frequently warned of “difficult times,” Healy has always tried to send an optimistic signal about the British economy. When the Burnham administration first came to power, it quickly introduced measures to cut household electricity bills, bus fare caps, and tax cuts for some catering companies. The head of a major British consumer company praised Healy, saying that he is concerned not only about the cost of living, but also about the cost of running a business.

However, 20 years have passed since she last worked in the Ministry of Finance, and Healy also admits that the current situation is even more difficult; the UK's debt burden is already three times that of that year. He wrote on social media: “Compared to what this country, this administration, and people and businesses are facing today, the conditions back then were really mild.”

For the new finance minister, the next challenge is how to strike a balance between reviewing the bond market and promising economic growth without repeating the mistakes of the previous one.