Why We Must Strengthen Our Finances and Shrink the State

Since taking charge at the Treasury, John Healey has repeatedly promised to give the economy some “breathing space” after the frenetic policymaking of his predecessor’s tenure in No 11.

Rachel Reeves’s Budget last November contained 88 policy and tax measures, following 70 changes announced the previous year.

The result was severe policy indigestion for companies, households, HMRC and the civil servants tasked with putting the reforms into practice.

Britain’s performance is all the more striking because the other major European economies — Germany, France and Italy — are stagnating, while the UK is expanding at an annual rate of 1.3 per cent.

That raises an obvious question: why is Prime Minister Andy Burnham so keen to draw Britain closer to the European Union?

Leaving the EU pushed British companies to widen their ambitions, seeking opportunities in the rapidly developing Pacific Basin and across North America.

Goldman Sachs estimates that closer EU links could lift output by 1 per cent — an appealing prospect. Conventional economics suggests trade with nearby neighbours is generally the most efficient.

But Canada is discovering that when a neighbour is hostile and as unpredictable as Donald Trump’s America, businesses may need to search further afield. Healey’s Budget is supposed to give Britain room to recover its breath.

More upbeat, confidence-building measures are likely, continuing the feel-good approach seen since Burnham entered No 10.

However, Healey would make a serious mistake by taking comfort from the IMF’s more sympathetic language and Britain’s upgraded growth outlook, then delivering a “steady as she goes” Budget in the style of former Royal Navy lieutenant James Callaghan in April 1967.

Callaghan’s complacency was soon tested by a series of shocks, including the Six-Day War, the closure of the Suez Canal and industrial action by dockworkers.

The economic waters grew increasingly rough. That November, Callaghan and Prime Minister Harold Wilson devalued sterling by 14 per cent, before the Chancellor ultimately resigned. Britain may look relatively stable today, but the challenges confronting the economy in 2026 are no less formidable.

Saudi Arabia is close to lockdown as it faces Yemen’s Iran-backed Houthi rebels, while the White House is controlled by an unreliable ally — a lesson Ukraine knows only too well.

France is wrestling with fiscal troubles that make the UK’s problems seem almost manageable. In Germany, meanwhile, the once-dominant engineering sector is faltering as China erodes its grip on the global mass-market car industry.

The priority should be shielding Britain from these external pressures. To reduce the risk of a Callaghan- or Truss-style crisis in the currency and bond markets, Healey should use this moment to reduce the size of the state.

At minimum, that should mean freezing public-sector pay and benefits. It would be reckless to rely solely on the extra room created by Reeves’s tax rises, many of which are already built into the system, alongside spending cuts that have not yet been identified.

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Banking gains

HSBC, it seems, cannot satisfy every audience. The bank’s surging profits will almost certainly be cited by critics of corporate earnings as justification for the expected increase in windfall taxes in today’s Budget.

Investors, by contrast, were underwhelmed. They had hoped for a stronger showing and more generous returns through share buybacks. A 32 per cent jump in third-quarter pre-tax profit to £7.2billion might normally have shareholders celebrating.

Instead, the result landed at the lower end of forecasts — despite a rising-interest-rate environment that ought to be improving the bank’s margins.

There is another way of looking at HSBC’s performance. It is becoming a simpler bank by disposing of marginal enterprises, such as Allianz in Singapore, and becoming more closely focused on its core markets. 

A higher bank tax doesn’t help and may partly explain the 5.4  share per cent price tumble. Nevertheless, the stock is up almost 30 per cent in the past year.

Better that HSBC strengthens its capital and builds a war chest for the geopolitical and AI horrors ahead.

Ice cream wars

Ben & Jerry’s is a sumptuous luxury ice cream brand. The political correctness that comes with it is a perpetual shadow.

Unilever spared itself further disruption when it spun off its Magnum ice cream brands in Amsterdam in late 2025.

That failed to dampen the spirits of founders Ben Cohen and Jerry Greenfield, who reportedly are seeking a separation and new employee-owned structure.

They should have thought about that when they sold B&J for £245million more than a quarter of a century ago.