Joe Mayes

***BLOOMBERG BUDGET ANALYSIS*** John Healey’s modest budget achieved his main aim of avoiding an adverse market reaction. But the cost-of-living support is small and will be swallowed up by coming rises to bills. It is a long way off Andy Burnham’s pledge to rip up 40 years of neoliberalism and transform the economy. And it could be out-of-date within days if Trump escalates against Iran and causes another energy price shock. The question is: does this budget really meet voters’ expectations of the change Burnham is promising and mean Labour’s popularity continues to improve? Or will it mark a turning point as Healey struggles to live up to the PM’s rhetoric within the constraints of the manifesto, global headwinds and fiscal reality? The IFS characterises the budget as “lots of fiddling, short-term things.” The Resolution Foundation says Healey has “spread the jam thin.” Kemi Badenoch asks: “Is that it?” Will this narrative take hold, or will Britons continue to be won over by the force of Burnham’s personality? It also seems fair to ask what happened to his big ambitious ideas? There was not much on “public control” and nationalisation today. The council house building programme isn’t so revolutionary. There were no major reforms to council tax, capital gains tax, stamp duty, a land value tax, cutting the personal tax threshold, as he’s previously floated. Healey’s commitment to spend 3% of GDP on defence by 2030 won immediate praise from Zelenskyy and NATO. But deferring the decision on how to fund it means the next year will be very tough for the government. The spending review and next budget look painful, with big welfare cuts and tax rises likely needed. The immediate fear in cabinet is Trump and Iran. UK officials believe it is likely the US military campaign is going to resume shortly. Resolution suggests that if there is serious escalation there it would wipe out Healey’s £15 billion headroom: “He doesn’t have enough to survive one bad roll of the dice.” It leaves Burnham’s fate in the hands of Trump. That gives a whole new meaning to his strategy of “hope.” With @PhilAldrick: bloomberg.com/news/articles/…

Business groups are sharply criticising John Healey’s budget “This budget lacks the bold moves that would have made it easier for firms to invest, hire and grow,” CBI boss Rain Newton-Smith says “There is nothing concrete to provide breathing space for the vast majority of businesses who are already dealing with energy bills a third higher than their European counterparts.” The budget had “nothing to ease sky-high energy bills and nothing to make hiring someone more affordable,” the Federation of Small Businesses says. The British Chambers of Commerce says Healey’s package lacks “the big calls that would really shift the economic dial” and that “many firms will have been hoping for a greater impact.” Make UK says the budget “failed to address any of the fundamental costs holding back investment and growth in manufacturing.” Via @Joe_Mayes @JacobReid02 @sabahmeddings: bloomberg.com/news/articles/…

EXCLUSIVE: John Healey’s bank tax rise will be temporary and come in at less than 8%, Bloomberg understands The hike is less steep than feared by the City Story on @TheTerminal with @Joe_Mayes @PhilAldrick

NEW by @PhilAldrick There is an £85 billion black hole in Andy Burnham’s spending plans The government says the changes to the triple lock will save £15 billion by 2040, or £11 billion in today’s money, and that he will not raise taxes to pay for social care That doesn’t come close to covering any realistic estimates for the new free-at-the-point-of-use national care service Burnham has promised “Burnham’s sums do not seem to add up,” said Kathleen Brooks, research director at XTB And there is a bigger threat The interest Britain is paying on its £2.9 trillion debt pile is rising automatically as cheaper issuance in the past rolls off and is replaced by expensive new borrowing Within a decade, if borrowing costs remain where they are, the government will pay £85 billion a year more in today’s money just to hold the debt burden steady at 94% of GDP, according to the National Institute of Economic and Social Research bloomberg.com/news/articles/…

ANALYSIS: Andy Burnham makes a huge gamble on a radical electoral strategy he knows could backfire The PM’s critics said he was just Keir Starmer with a northern accent. Today he showed that couldn’t be further from the truth, taking massive risks by plunging head first into some of Britain’s most controversial and divisive political debates. He opened the door to rejoining the EU or at least the single market. He ditched the triple lock loved by pensioners to pay for their care. He pledged electoral reform to favour progressive parties. He signalled big tax rises are coming. “I accept I may pay a political price,” Burnham said. One of his own aides calls it a gamble. Another ally praises his bravery but concedes don’t know if it’ll pay off. The PM’s supporters argue he is delivering the change Labour thought they were getting when they won the election. One says the speech will in future be viewed as a historic moment on a par with Attlee and Bevan setting up the NHS. Several Labour MPs tell Bloomberg Burnham deserves credit for doing the morally and fiscally right thing. @Meg_HillierMP calls it “exhilarating.” BUT there is real trepidation on both the right and left of the Labour Party tonight over whether this bold approach could go wrong. A former Labour cabinet minister under Starmer says the decision to scrap the triple lock is “completely insane.” They call it “winter fuel on crack.” A former senior Labour aide describes it as “madness on stilts”, adding that reopening the Brexit debate will be divisive for the country and mean Labour’s opponents can accuse them at the next election of supporting unlimited immigration from the EU. “There are so many alternatives to funding social care without cutting pensions,” John McDonnell tells Bloomberg. Neil Duncan-Jordan says: “In politics you’re supposed to learn from getting your fingers burnt. Labour got itself into a mess over winter fuel and lost trust with millions.” And when the excitement from the speech settles, the truth is none of these policies will be delivered any time soon, leaving Burnham still without a clear plan to improve people’s lives before the next election. The danger, the former minister says, is he could be viewed as the “buy now, pay later” PM. With brilliant Bloomberg team @LucyGJWhite @JacobReid02 @ChaplainChloe @Joe_Mayes: bloomberg.com/news/articles/…

New: Why Andy Burnham is against a snap election The topic has been discussed by Labour aides and ministers but the upshot is No10 says Burnham’s inner circle is strongly opposed the idea. The main reason is the polls, which currently see a hung parliament. Burnham could still be PM but he might throw away his majority and have to lead a rainbow coalition. Calling a snap election and getting that result would be seen as one of the biggest own goals in modern British political history. It would be utter madness to call an election without a significant and sustained poll lead, a Labour official says. There is no way Burnham would start to think seriously about calling an election unless the bounce he’s enjoyed since becoming PM continued and he built up a large lead over Reform and the Tories, they say. Even then, Theresa May did it with a 20-point lead over Corbyn in 2017 and ended up humiliated. Another key factor in the anti column is Labour MPs don’t want one because many of them would lose their seats. Burnham is currently at his peak popularity with his MPs. He doesn’t want to throw that away by rolling the dice with their jobs. Also under consideration is the economic picture. Calling an election in the spring against a backdrop of a weak economy, rising inflation and interest rates and a higher cost-of-living would be highly undesirable, another Labour official says. It is the Tories who want to push the narrative that he’s been considering a snap election, aides say. That’s not to say some advisers haven’t been tempted by the idea of an election next year. The main argument in favour is he would be able to get his own mandate and throw off the shackles of the current manifesto. Burnham himself says the manifesto is restricting what he can do this parliament. That applies to tax, social care, the triple lock, the EU. There is a scenario that tempts some aides. If the Iran war resolves quickly, if the economic hit isn’t as bad as feared, if there are further major developments in Nigel Farage’s funding scandals that seriously damage him as an electoral force, and if Labour’s poll lead grows and grows as a result, pressure would build on Burnham to press home the advantage next year. We can’t be certain that isn’t going to happen, but it’s not the central scenario at the moment. bloomberg.com/news/articles/…

New: There is mounting frustration among British businesses and banks at the lack of clarity in John Healey’s plans for the economy It has been an emerging theme in recent weeks as Healey has faced criticism over his lack of clear economic strategy. The concerns have only got louder at Labour conference One business leader says they’d been told to expect something in Healey’s speech about cutting companies’ costs, so they were disappointed when nothing was announced Other business delegates criticised the government’s much-repeated goal of “reindustrialisation,” saying they did not know what ministers meant by that and how it fitted with last year’s industrial strategy Aside from an initial gathering with big business in the summer, there’s been little engagement between Healey and Square Mile companies, multiple people said. That has got to the point where there was a ring-around among senior bankers recently to ask if anyone had been given an audience, one person said It’s led many to fear tax rises on banks are coming. That would be deeply unpopular with both domestic and international banks that have large operations in the UK, but there’s a growing recognition in the sector that Healey’s team is more concerned about its relations with other groups like trade unions By @GriffithsKath_ @Joe_Mayes: bloomberg.com/news/articles/…

NEW: Bloomberg Saturday read Andy Burnham’s honeymoon ended this week as the realities of governing came into view — Labour officials are increasingly concerned the budget will be gloomier than expected. They think winter and early 2027 will see rises in energy bills, inflation and interest rates, threatening the PM’s defining mission to bring down the cost-of-living. — It’s led Burnham to shift his messaging, away from “hope” to preparing the public for “challenging” times and “difficult decisions.” The fear among Burnham supporters is how he can avoid a narrative of “meet the new boss, same as the old boss.” An ally of Rachel Reeves jokes that Burnham and John Healey now sound like her. — On Tuesday Burnham meets the man his allies blame for his problems: Donald Trump. Privately, aides are seething that Trump’s chaos is wrecking what might otherwise be an improving UK picture. But they can’t say so publicly. Burnham has to get him to give Patriot air defence missiles to Ukraine and, somehow, end the nightmare in the Middle East. — For the PM’s critics within Labour, this was all so predictable. Starmerites have long argued Burnham was heavy on vibes but light on substance. For them, he focused on being a better communicator but never had a plan to overcome the geopolitical headwinds threatening Britain. Inside government there is frustration that No10 was slow to see what was coming. It surprised some that Burnham chose to define success on quickly improving the cost-of-living, something that’s not in his control. — Some executives who attended a private speech by Healey in Downing Street this week left underwhelmed at the lack of new ideas. One business representative says the speech was indistinguishable from one Reeves could have given. Another says it was a step down from Reeves, who they argued was more confident and able to show she was across the detail. — The current concern in No10/No11 is energy bills. Officials have been buoyed by evidence that previous policies to reduce bills went some way to paying for themselves by mechanically lowering inflation and gilt yields. They are looking at other ways they can do similar at the budget. But the looming 25% rise in the Ofgem price cap means any new scrapping of levies may be swallowed up. — It’s also hard to just blame Trump. Labour MPs on the left say the big danger is Burnham ends up like Starmer: tinkering around the edges and not living up to the generational transformation he promised. Inside the confines of the manifesto on tax, the triple lock and Europe, it’s unclear how different the Burnham project is from what Starmer would have done, as shown by the great @samcoatessky scoop this week. — Labour MPs also think Burnham was lucky his takeover coincided with Nigel Farage’s implosion. The poll boost Burnham has enjoyed might be a mirage, one says. The darkening mood has all-but ended talk in Labour of a snap election. Some aides had argued a spring poll would take advantage of Farage’s weakness. But an election amid tax rises, energy bill increases and interest rate hikes would be extremely ill-advised, a person close to Burnham says. bloomberg.com/news/articles/…

Exclusive: UK household energy bills are forecast to jump *by about 25%* in January as the Iran war drives up gas and electricity prices, according to analysis by Bloomberg Economics The coming price spike means UK inflation could climb above 4% next year, double the BoE target, the analysis finds The Ofgem energy price cap is expected to rise by about £427 to around £2,150 a year for the average household, according to the forecasts This would push bills close to the £2,500 cap brought in by the government following Russia’s full-scale invasion of Ukraine in 2022 It’s a major threat to Andy Burnham’s pledge to be the cost-of-living prime minister Story by @EamonFarhat: bloomberg.com/news/articles/…

EXCLUSIVE: Andy Burnham is considering requests from Saudi Arabia for a range of military support to counter attacks from the Houthis, as the UK fears a “catastrophic” economic hit from a new front in the Iran war. The Saudi asks include operational support for its military to repel the Houthis’ push along the Red Sea coast toward the Bab el-Mandeb Strait, a key trade chokepoint, and help to defend against strikes on its oil infrastructure, sources tell Bloomberg. Burnham has agreed to send British military advisers to Saudi Arabia in response to the requests, sources say. It’s unclear whether he’s willing to approve the other asks, which haven’t been disclosed by the UK government. The Foreign Office and MoD declined to answer questions. Burnham is facing one of his first major foreign policy and economic dilemmas since he became PM. Britain is determined not to get drawn into the conflict, not least because it didn’t support Trump’s war on Iran. Yet the crisis poses serious challenges ahead of next month’s budget. Burnham has been advised by his officials that if the Houthis take control of the Bab el-Mandeb Strait it will have a “catastrophic” impact on international shipping and provide another hit to the global economy through a further spike in the oil price and inflation, the sources said. The Houthi attacks have sent Brent crude toward $110 a barrel. Gilts extended a drop today as money markets added to bets on Bank of England interest rate rises off the back of inflation fears. Traders now fully price five quarter-point BoE hikes by the end of 2027, an outcome that would badly complicate the PM’s key pledge to reduce the cost-of-living. The Treasury is also worried that the recent escalation is taking place as the OBR prepares its economic and fiscal forecasts for the budget. John Healey had been hoping for a market reprieve during the assessment window. Instead it’s going further in the wrong direction and potentially leaving the chancellor with even more of a fiscal hole. Under Rishi Sunak the UK hit Houthi targets in Yemen to combat disruption in the Red Sea. Under Keir Starmer it deployed Sky Sabre air defences to help Riyadh. bloomberg.com/news/articles/…

NEW: Bloomberg Saturday read Andy Burnham’s can-do attitude scores some quick wins but an economic strategy is still missing — On taking office the PM instilled into cabinet ministers and civil servants running up against thorny policy issues that no is not an answer, they have to push the system to the limits and, to use the online meme: “you can just do things.” — He wanted to differentiate himself from Keir Starmer by demonstrating clear policy changes, rejecting official advice and government lawyers warning of risks. Privately Burnham’s allies disparage Starmer for criticising the “tepid bath water of decline” then, as one says, “reaching for the cold tap.” Antonia Romeo and Lou Haigh are credited with pushing ministers harder to achieve more. — In some areas it’s working. Two police killers were kept in prison, a solution not without drawbacks but one which took that politically toxic story off the front pages. Ed Miliband’s carefully-calibrated Israel announcement sanctioning landed as well as it could have, officials say: Trump accepted it, there was only muted criticism domestically and a limited response from Israel. — But some in Labour are wary of gaining too much confidence from early successes. One person close to Burnham says the question that really matters is what he plans to do with the economy, and that remains unanswered. John Healey’s low-key speech this week offered few answers and some Burnham allies worry he had little to say about his wider strategy or vision or how he would boost growth in the face of global headwinds. — There is some economic confusion. Healey said he has to get borrowing down amid the bond selloff, but he wants to loosen the fiscal rules to borrow more. Burnham keeps saying he’s a tax-cutter but economists think he’ll have to raise taxes to plug a fiscal hole. Devolution is the big policy but that’ll take years to be felt. Labour officials say there’s absence of clarity on the economic plan the government will pursue to materially improve Britons’ lives before the next election. — One problem is it’s unclear who’s in charge of economic strategy. There’s Healey. There’s No10 North, with its remit to run growth policy. There’s the original No10, where a restructure is still not complete. And external advisers chime in from the sidelines, like Jim O’Neill who tells Bloomberg Burnham should not raise any taxes at the budget. — It means that, while some non-economic issues are being resolved through Burnham’s can-do mantra, the tougher economic and fiscal ones are being deferred. Defence spending to next year. Welfare cuts TBC. Expensive Thames Water nationalisation put off. Even the Jackdaw decision is now not expected next week. The framing of the budget as a non-event has puzzled those in Labour who thought it’d be a transformative moment. — Look at Europe policy. Burnham’s once ambitious plans have been shelved as it dawns on ministers that with the current red lines there’s no big reset to be achieved. UK negotiators are now bogged down in the same horrible negotiations with Brussels over SPS and youth mobility. Meanwhile the EU says it’s seeking a closer relationship with Canada than the UK. — Most worryingly for government officials, they’ve had little answer from ministers on how they intend to counter feared lower growth and higher inflation next year caused by the Iran war. Remembering that “you can just do things” may have helped Burnham get smaller policies out of the gates but he won’t be able to put off the bigger decisions much longer. With @ChaplainChloe: bloomberg.com/news/articles/…

Exclusive: Andy Burnham’s economic guru Jim O’Neill says the government should not raise any taxes at the budget “I do not think any further increases in taxes are going to be doing anything to sustain the growth of the economy,” O’Neill tells @BloombergUK after the UK economy beat expectations in July He says in particular the UK should not raise taxes on banks, businesses or oil and gas companies, and that the govt should not try to equalise capital gains tax and income tax “The last thing that should be going on is more taxes on business” On CGT, he says: “It’s not entirely clear it would even raise any money. It’s very misunderstood and the last thing we should be trying to do is deterring genuine risk-taking investment.” And he calls on Burnham to scrap the pensions triple lock: “The triple lock is right at the top of things that are just simply not affordable” Story by @Joe_Mayes: bloomberg.com/news/articles/…

Exclusive by @George_Nixon97 The UK is today set to pay its highest borrowing costs on a debt sale since at least 1998 following the recent bond selloff That’s the backdrop for a budget that’s likely to further increase borrowing bloomberg.com/news/articles/…

NEW by @Joe_Mayes: John Healey’s bind deepens. Could he go for lower headroom at the budget? A key question hanging over the chancellor is whether he will seek to maintain Rachel Reeves’ £23.6 billion fiscal buffer or whether he’ll be satisfied with smaller headroom against the government’s borrowing targets So far, Healey and the government have only said they want a “credible” buffer, without specifying a figure They’ve been asked about this repeatedly in recent days and notably have not committed to restoring Reeves’ headroom, which at the moment has been halved by the recent bond rout That has been interpreted as a signal they’d be happy with a smaller fiscal headroom than that enjoyed by Reeves Restoring the buffer would help fiscal credibility but cost billions and make it hard for Healey to have any money left for giveaways. Allowing lower headroom would free up some cash but risk worrying investors and increasing vulnerability to future market movements This is a big call for the new chancellor ahead of the budget bloomberg.com/news/articles/…

NEW: Bloomberg back-to-school Saturday read with @Joe_Mayes @EllenAMilligan — John Healey is looking to take the drama out of the Oct 28th budget with low-key measures that don’t rock the boat politically, according to people familiar with the matter. — It won’t be on the scale of the last two by Rachel Reeves, which collectively raised taxes by £60 billion, for fear of repeating the doom-laden experience of the Keir Starmer government. — But this sets up Burnham’s first major challenge. As @NationJames says, they are conditioning the markets that it’s going to be cautious, streamlined, no surprises. But how do you do that and also deliver a budget that’s radical enough to meet the PM’s lofty rhetoric about ripping up the last 40 years? — Hard choices will still be needed. Bloomberg Economics estimates a £9 billion deterioration in the headroom inherited from Reeves. If Healey wants to restore a similar buffer he’ll have to raise taxes and cut spending. — One option being discussed in the Treasury is increasing taxes on banks, who’ve enjoyed recent windfall profits, a prospect described by an official as low-hanging fruit that Burnham and Healey will find hard to ignore. — Treasury officials responsible for monitoring the economic impacts of the Iran war have also noted that BP saw its profits more than double between April and June thanks to elevated oil prices, leading some officials to propose increased taxes on the windfall for fossil fuel companies.  — Healey is also considering the scope within Britain’s fiscal rules to increase borrowing to invest in infrastructure projects, but is mindful of any adverse market reaction if he goes too far. — There are early signs of No10/No11 tensions. Burnham floated lifting the personal tax threshold but quickly rowed back. A costly plan to take Thames Water under public control has also been parked. — Welfare reviews also unlikely to be completed in time for the budget, so solutions for a lot of the thorniest issues are being held back for Burnham’s 10-year-plan speech in December. — Then there is defence spending. It is remarkable that Healey resigned over defence spending to bring down Starmer and yet has allowed the decision on 3% by 2030 to be deferred again. That judgment will have to be made in the 2027 spending review. bloomberg.com/news/articles/…