John Healey, until recently defence secretary under Keir Starmer, has been appointed chancellor by incoming prime minister Andy Burnham, a move that shocked even senior Labour figures after weeks of intense lobbying by party heavyweights.
"We did not see this coming," said one Labour MP. "But that is probably a sign that it is a good decision."
Healey's Treasury credentials and policy alignment
Officials said Burnham chose Healey because the two agreed on sticking to borrowing rules, re-industrialisation, devolution, and intervention to help with the cost of living. Healey also served as a junior Treasury minister for five years under Gordon Brown, earning a reputation as a stalwart Brownite.
His appointment signals the prime minister's thinking on defence spending. Healey resigned as defence secretary last month in protest at the proposed defence investment plan, a critical moment in Starmer's downfall. Some Starmer allies believe that resignation sapped the former prime minister's will to fight Burnham for the premiership, and some even think Healey did a deal to become chancellor before resigning.
Healey will almost certainly use his new position to increase defence spending, possibly by issuing "defence bonds" – new borrowing allocated only for the military – which he advocated in government.
Lobbying campaigns by Miliband, Mahmood, and Reeves
While Healey's allies pushed his case less vociferously than others, Ed Miliband, Shabana Mahmood, and Rachel Reeves had been more active. Weeks before Burnham was elected, some thought Reeves was positioning to stay as chancellor. Her proposal to freeze private sector rents was seen as a signal to the more interventionist Burnham. Katie Martin, one of her senior advisers, called business lobbyists and executives to press her case.
Supportive MPs rallied round Reeves. One told the Guardian: "I am concerned that we may lose everything if a new leader sacrifices the chancellor for promises and new alliances they are currently forging with MPs who fancy the job for themselves. The biggest fear for the bond markets and the unions is Ed Miliband." In the end, Reeves resigned from the government on Monday after turning down another big appointment, reported to be defence secretary.
Miliband's allies also pressed his case, arguing his green infrastructure efforts were pro-growth. Several union leaders gave him public endorsement. "We need a chancellor who will rewire the economy and properly invest to improve the lives of the majority," said Unison leader Andrea Egan. "Of those reported to be in the running, only Ed Miliband could enact the kinds of policies trade unions and our members urgently need."
Many close to Burnham indicated they thought Miliband should be the pick. One said: "We need someone who knows the Treasury, can push back on what civil servants naturally want to do and has a proven track record of achieving things in government. That has to be Ed." However, others were sceptical. One Burnham ally described Miliband's previous leadership as having "screwed up the Labour party for a decade." Another accused his allies of "living in cloud cuckoo land."
Heavy lobbying from business and markets against Miliband counted against him. With the Iran war threatening inflation and borrowing costs rising, even former supporters expressed doubt. "It might just be time for a fiscal hawk," said one MP who had previously advocated for Miliband.
Mahmood's prospects and other ministerial changes
Those close to Mahmood thought she might have a chance at the Treasury. She had told friends she wanted to remain home secretary to oversee asylum and immigration changes. But as divisions grew, her allies mentioned her as a possible pick. Those who know her economic views say she would have been fiscally dry but committed to re-industrialisation. Burnham is known to admire her, and one supporter told the Financial Times days ago: "Shabana is nailed down as chancellor. That's definitely happening." In the end, she will continue as home secretary, with no major watering down of her proposals.
Steve Reed, outgoing housing and communities secretary, stressed his commitment to devolution in final weeks, but it was not enough to save his job. Several other ministers were privately candid about desired roles, with some touting technology expertise, though Burnham is expected to scrap the technology department altogether. Some in international roles stressed domestic policy credentials.
However, those close to Burnham say the lobbying campaigns may have backfired. "Andy hates people briefing themselves into jobs," said one aide. "Anyone doing so is just as likely to find themselves out of government."
