As John Healey settles into 10 Downing Street following Andy Burnham’s surprise Cabinet reshuffle, David Smith, Economics Editor of The Sunday Times, gives his take on the new Chancellor, how the markets have reacted, and what it could mean for businesses navigating the months ahead.

Changes of prime minister used to be a very big deal. Between 1979 and 2007, 28 years in all, the UK only had three: Margaret Thatcher, John Major and Tony Blair. Changes of chancellor were also much more limited. Over that same period there were only six in all, starting with Geoffrey Howe and ending with Gordon Brown.

On both counts, we have moved into overdrive. Andy Burnham is the seventh prime minister in 10 years, John Healey the eighth chancellor in seven years. The stability that business wants and expects in government has been sadly lacking in recent years. 2016 ushered in a new instability that has not gone away. One of those recent chancellors and prime ministers, Rishi Sunak, has written that these posts now have less job security than the average Premier League football manager, let alone chief executives in the world of business.

All we can do, however, is deal with the world as we find it. So, assuming that Burnham and Healey will be around for a while yet – they hope a long while – what can we expect from them?

Burnham, despite being away from national politics as mayor of Greater Manchester for nine years, is quite a well-known figure. He will aim to demonstrate that the approach that worked in Manchester, sometimes known as “Manchesterism”, can work on a national scale. He has promised to work with business towards that end.

His chancellor, Healey, is less well-known; the biggest thing he has done in his political career was resigning a few weeks ago as defence secretary because of what he thought was an inadequate settlement from the Treasury. That resignation helped bring down Sir Keir Starmer, and the chancellorship could be said to be his reward.

Is it a reward, or a poisoned chalice? The public finances remain very tight, as evidenced by the Treasury’s reluctance to provide more money for defence when he was asking for it. At the very least in his new job, Healey has to come up with the resources to lift defence spending from the projected 2.7 per cent of gross domestic product (GDP) to 3 per cent, at an annual cost of £10 billion or so.

He also has to find the money for the new prime minister’s other ambitions, including what Burnham has said will be the biggest programme of council housebuilding since the 1950s. He wants to fix social care, something that has eluded all his recent predecessors. He has also mused about ending the long freeze on the personal income tax allowance, stuck at £12,570 since 2022, and due to stay there until 2031.

He says it came up on the doorsteps during the Makerfield by-election, which he won. The freeze, which institutionalises fiscal drag, is however the bedrock of the planned deficit reduction in coming years, and lifting it is very expensive. Every £100 lifting of the allowance, which would net basic rate taxpayers a £20 a year tax saving, costs £1 billion.

So all this looks very hard. A flurry of announcements from No.10, so far including removing VAT from domestic electricity bills, a £2 cap next year on bus fares and a 20 per cent reduction in business rates on pubs, clubs and smaller entertainment venues, were eye-catching though cost relatively little. Funding those changes should not prove to be a problem.

Meeting the new prime minister’s other ambitions is another matter. As businesses, still smarting from Rachel Reeves’s tax hikes, will know, the tax burden and the cost of doing business – and employing people – have gone up. If it goes up further, it will be very difficult to meet Burnham’s ambition of “growth in every postcode”.

“As a collective, the CFO community prioritises a Chancellor who champions pro-business policies, advocates for lighter-touch regulation, vigorously promotes British industry, and possesses the agility to act decisively on executive concerns.

While it remains to be seen if John Healey will fully deliver on these expectations, early financial market reactions reflect a state of cautious optimism. Should this stability translate into sustained macroeconomic growth, we anticipate an immediate surge in corporate confidence, further intensifying the demand for top-tier senior finance talent.” 

– Mark Craddock, Head of Executive Search, Finance Practice

Until we know more, for now, unfortunately, it looks as though businesses will have to deal with a summer and early autumn bout of pre-budget speculation, which could be every bit as bad as the growth-destroying speculation leading up to the 2024 and 2025 autumn budgets. The new prime minister and chancellor have both said they want to work with business. Dampening down some of that pre-budget speculation would be a good start, as would be a recognition that not all of any administration’s ambitions can be achieved overnight.

All eyes will no doubt turn to the Autumn Budget for a clearer sense of the direction he intends to take the economy. We’ll be catching up with David Smith again in November to get his take on the announcement and what it means for businesses – so watch this space.