Former defence minister Healey named as new UK finance minister

By Alistair Smout, Andrew MacAskill and David Milliken

LONDON, July 20 (Reuters) - Britain's new prime minister, Andy Burnham, named former defence secretary John Healey as finance minister on Monday, just weeks after he resigned from the previous government with a stinging rebuke of how the Treasury had fallen short on defence spending.

Widely liked by colleagues, Healey, 66, will now have to find more money to invest in key areas like defence and speed up a slow economy while reducing the welfare bill, all while fulfilling Burnham's pledge to stick within the fiscal rules.

His appointment may also signal a new approach to how the powerful Treasury works. Earlier this month he attacked its culture and "Treasury orthodoxy" for acting as a "dead hand on dynamic government".

Labour lawmakers welcomed the move, saying it would signal to U.S. President Donald Trump and NATO that Britain was serious about funding defence, while some lawmakers in other parties urged Burnham and Healey to consider "defence bonds" to borrow more specifically to invest in the sector.

HEALEY HAS TREASURY EXPERIENCE, TARGETS REINDUSTRIALISATION

Healey resigned from Keir Starmer's government in June, saying the former prime minister had been "unable" and the finance ministry "unwilling" to find the money to keep the country safe. He said in a resignation speech to lawmakers that "our adversaries do not follow timetables set by the Treasury."

Healey had not been seen as a leading candidate for the key finance role, but — having worked as a junior minister in the Treasury from 2002 to 2007 under finance minister Gordon Brown and served in senior roles for every Labour leader since — he was welcomed by investors, analysts and lawmakers as a safe pair of hands.

People familiar with the decision said Healey and Burnham had similar outlooks on the need to maintain economic stability and the need to drive growth by devolving power across the country, helping people with the cost of living, and building up Britain's industrial base.

Healey told the BBC earlier this month that investment in defence could be part of the revitalisation and reindustrialisation of the country.

Sterling rose marginally after his appointment — having fallen earlier when Burnham talked about possible flexibility in the country's fiscal rules — and the initial reaction among analysts was positive.

"Healey brings Treasury experience and is a sign that Burnham will respect the bond markets as a check on his radicalism, rather than plough ahead with significant changes that could unsettle the fiscal position," said Richard Carter, head of fixed interest research at Quilter Cheviot.

But he will be confronted by many challenges.

As defence minister, Healey spent months lobbying Starmer and the finance ministry to lay out a pathway to spend 3% of GDP on defence by 2030, rather than the 2.68% that the government eventually had budgeted for.

The unexpected resignation by Healey, who was a loyal ally of Starmer and one of the government's most experienced ministers, was a significant blow to the then prime minister, who announced his resignation less than two weeks later.

One government official who has worked with Healey described him as a competent, pragmatic politician, rather than an ideologue.

Healey also previously served as a local government minister, an area central to Burnham's agenda, and has argued that more funding and tax-raising powers should be devolved from central government to regional leaders.

(Reporting by Muvija M, Alistair Smout, Elizabeth Piper, Andrew MacAskill and David Milliken, writing by Kate Holton and Alistair Smout; editing by William James and Nia Williams)