John Healey warned that Labour cannot replicate Tony Blair’s era of increased public spending as he sought to ease concerns over possible tax rises in the upcoming Budget.
Speaking to Left-wing activists at the Labour conference in Liverpool, the Chancellor urged the party to face up to economic reality. He said the funding that flowed into public services under New Labour was “simply not there now”.
Mr Healey said he remained committed to the Government’s fiscal rules, fuelling further speculation that the Budget could include tax increases.
He also argued that allowing the benefits bill to grow “bigger and bigger” was not progressive. Instead, he suggested Labour would prioritise helping young people into employment rather than expanding welfare payments.
Despite the difficult economic climate, the Chancellor said there was still scope for “new hope”. He made the remarks as he announced a new programme to expand local apprenticeships under the oversight of mayors.
However, the Government is confronting an increasingly challenging financial backdrop, with higher inflation linked to the Middle East crisis and weak economic growth putting further pressure on the nation’s finances.
Lower immigration projections from the Treasury’s Office for Budget Responsibility could also reduce Mr Healey’s headroom under the fiscal rules. The impact could be as much as £7billion, as fewer expected migrants would mean lower projected tax revenues.
At the same time, Prime Minister Andy Burnham has announced a series of major spending plans. These include a pledge made yesterday to create an NHS-style social care service after the next election, a policy that could cost £18billion a year.
There has been speculation that part of the cost could be met by changing the state pension “triple lock”. The guarantee increases payments by whichever is highest among inflation, earnings growth or 2.5 per cent.
Capital gains tax is one of the measures being discussed as a possible way for the Chancellor to raise additional revenue and reassure financial markets that the Government intends to balance the books.
Chancellor John Healey delivered his first Labour conference address in Liverpool as concerns mounted over the health of the public finances
Prime Minister Andy Burnham watched his Chancellor’s speech from the stage
Renewed tensions linked to the Iran war sent the price of Brent crude soaring to $108 a barrel overnight.
The financial pressure on households could intensify further after President Donald Trump said he was “seriously” considering an embargo on US diesel exports.
Such a move would help restrain prices for American consumers but could drive them sharply higher in other parts of the world.
Mr Healey said: “I know the nineties is having a bit of a revival. To Andy’s excitement, Oasis is going back on tour, and to Angela’s joy Gladiators is back on TV. But I have to level with you, conference: the money New Labour had in the 90s is simply not there now.
“Economic growth under Gordon [Brown] was more than double that of the Tory years that followed, and Britain has it harder now.”
The Chancellor blamed “14 years of flatlining Tory growth and living standards”, but said the Government’s aim was to rebuild confidence in the economy and improve the financial position of families.
He added: “Labour isn’t just here to cut the cake in a different way. We have to bake a bigger cake and make sure that it’s fairly shared.
“So whether it’s the cost of doing business or the cost of living, the only long-term answer is growth.”
Referencing soaring interest costs on the Government’s borrowing, Mr Healey said: ‘The cost of the nation’s debt is not just a number in a Chancellor’s budget. It’s the money that we can’t spend on the NHS, on schools, on housing, on social care, on policing our streets, on controlling our borders, on defending our country.
‘I tell you, these levels of debt are an assault on our common sense. They’re an affront to our values, and that’s why the Prime Minister and I are in lockstep, that we will meet the fiscal rules, that we will maintain control of Britain’s finances.’
The Tories and Reform have been demanding Labour slashes benefits to fund more spending in areas such as defence, instead of hiking taxes.
Mr Healey said: ‘Conference, it is not progressive to allow a bigger and bigger benefits bill, and a system which offers an income but doesn’t offer a future.
‘So once again, as a Labour government, it falls to us to act. And this is more than just an economic must. This is a moral duty.
‘I refuse to write off a million young people like the Tories have done.’
He added: ‘I see a generation born this century, digital natives, whip-smart, questioning, ambitious, brave, I see the best asset we have in our young people, and I believe this generation has the potential to be a great generation.
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‘And I believe we can help this generation move from generation jeopardy to generation hope.’
Mr Healey tried to strike an upbeat note, saying Britain can enter a ‘new age of industrialisation’.
The Chancellor argued that the UK cannot return to the coal mines of its past.
Describing his politics as ‘shaped by the industrial heartlands of South Yorkshire’, he pointed to the example of the former Orgreave mine, now the site of Rotherham’s Advanced Manufacturing Park.
The Chancellor said: ‘Our coal mines are not coming back. But this is how Britain’s industrial past is being remade now for the modern world.
‘This is the new age of industrialisation. A new confidence in Britain.’
Mr Healey, who quit as Sir Keir Starmer’s defence secretary in a row over funding for the military, confirmed more support for Britain’s shipbuilding industry, with investment in the Royal Navy’s Scottish submarine base at its heart.
He said three new floating docks at HM Naval Base Clyde, Faslane, will be procured through a UK-only competition.
Known as Programme Euston, plans for the new docks were first set out in 2023 and are expected to upgrade Faslane’s facilities for the next generation of British submarines.
The Ministry of Defence has previously said they are expected to come into service in the early 2030s, and the docks form part of a wider £15billion upgrade programme for the Royal Navy’s shipyards.
The announcement follows a commitment by Louise Haigh, the First Secretary of State, who said on Sunday the Government would commission a new marine research vessel as part of plans for a ‘new era of reindustrialisation’.
Mr Healey announced £115million in funding for the ship, which is also set to come into service in the early 2030s.
Ahead of his speech, he said: ‘By backing British shipyards, we are not only boosting national security but also securing resilience in the industries that will drive growth today while building the capabilities the country needs for the future.’
Plans for a new age of industrialisation echo Mr Burnham’s pledge to prioritise ‘reindustrialisation’ as a way of boosting Britain’s sluggish growth.
But the Chancellor’s conference speech coincides with more gloomy economic news from the Confederation of British Industry (CBI).
A survey by the business group found private sector firms saw falling activity in the three months up to September, and expect activity to continue to decline for the rest of the year.
Much of that decline was driven by retail and services, with manufacturing declining more moderately.
CBI deputy chief economist Alpesh Paleja said rising energy and employment costs combined with weak demand were continuing to put pressure on profit margins.
He added: ‘Uncertainty ahead of next month’s Budget is also holding back activity in some sectors.
‘Against the backdrop of renewed fiscal pressures, the Budget must draw a clear red line under any more rises in the cost of hiring, investing and doing business.’
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Shadow Chancellor Andrew Griffith said: ‘These are more reheated announcements without clarity on where the money is coming from. Additional docks were announced months ago in the defence investment plan, which still has a £4.7 billion black hole.
‘John Healey resigned warning that Labour’s failure to fund defence was making Britain unsafe. Now that he is Chancellor, he still won’t fund the 3% target he walked out over.
‘Labour are running scared of making the tough choices needed to pay for Britain’s defence. All they can offer is reannounced docks and more hot air from Healey. Only the Conservatives will cut the welfare bill to fund defence.’
John O’Connell, chief executive of the TaxPayers’ Alliance, said: ‘The chancellor offered next to nothing to defuse the benefits bomb sitting under Britain’s economy.
‘The plans he did announce are little more than taxpayer-funded make-work schemes and bungs to trade unions dressed up as welfare and work reforms, all the while refusing to acknowledge the damage done to businesses and employment by his predecessor.
‘If the chancellor is serious about getting young people back into work, he needs to reduce the burdens on businesses and cut welfare spending.’
