John Healey’s first speech as Chancellor has had a minimal effect on UK Gilt markets. The 2-year yield is up less than 2 basis points this morning, and the 10-year Gilt yield is up by 1bp, in line with the movement in yields elsewhere. Sterling is also up a notch, but overall, the new Chancellor has not rocked the boat for financial markets.

No floating of Budget plans for Healey

This much-anticipated speech affirmed Healey’s commitment to the fiscal rules, and he also said that he would maintain a buffer to protect the economy from unexpected challenges. However, tax and spend decisions that may be included in the Budget were conspicuous by their absence.

Healey would not be drawn on tax plans, aside from saying that he would stick to the manifesto promises to not raise VAT, income tax and corporation tax. He would not speculate on the content of next month’s Budget, aside from saying there is a need to bring down welfare costs.

If Healey wants growth he has to ditch tax rise hopes

Rather than focus on the details of his Budget, instead Healey wants his focus to be on growth. Although he did not rule out tax increases, which may lead to concerns that taxes will be raised. However, we think that the fact he is talking about growth, and one reason why growth is under pressure in the UK is because of a record high tax burden, suggests that tax rises in this budget would not help him to reach his mission of growth in every postcode.

Markets favour Healey’s approach to Budget

Unlike previous budgets, where plans have been floated in advance, Healey is doing the opposite. The Budget is under wraps for now. This is why the market impact from this speech has been minimal and he has not rocked the boat, which we can assume is exactly what John Healey wanted.

Decentralisation the focus of Healey’s growth plans

The main focus of his speech was de-centralisation and growing business investment. This is one way to boost public sector spending without adding pressure to the national debt, since this spending is outside of Healey’s fiscal rules.

The Chancellor followed Andy Burnham’s line on decentralisation. He said that he wants to decentralise investment and wants a road map to fiscal devolution, that could include a share of income tax. This is a bold change, however, the plan was lacking in detail, so we can assume that it won’t happen in this parliament.

Healey doesn’t forget London

He talked up London, calling it the UK’s powerhouse. However, he said that the UK needs to follow the lead from France and Germany with boosting city regions. This could attract some criticism especially since the UK grew at a faster pace than France and Germany in Q2. However, Healey should be praised for pushing for more investment and growth and trying to be more positive about the outlook for the UK economy, especially compared to his predecessor.

Healey won’t rule out scrapping the pension triple lock

There were also questions on spending, after recent criticism of the pension triple lock. Healey refused to comment on spending cuts, but he did say that welfare reform is necessary. Could there be a change to the triple lock, in return for cutting national insurance for young people to reduce NEETS?

We believe that this option is looking increasingly likely for next month’s Budget. It would be the easiest way to reduce youth unemployment, and it would give Burnham’s government credibility on bringing the UK’s spending problem under control.The main takeaway from Healey’s speech is that the Budget is on 28th October, and he won’t be disclosing his plans before then.