Ignore the OBR – tax lenders, says Labour deputy hopeful

Photo credit: Simon Dawson / No 10 Downing Street This file is licensed under the Open Government License 3

The race to replace Angela Rayner as Labour’s deputy leader has opened up more than a contest for party management. It has revealed profound divisions over the economic course of a government elected with a promise to transform the country. For those in housing and mortgage markets, the debate is more than academic: it could shape fiscal policy, interest rates, and the long-term stability of household finances.

Louise Haigh, the former transport secretary who was sacked last November after admitting to an earlier fraud conviction and now a frontrunner for the deputy role, has launched a blistering attack on the Treasury’s orthodoxy. She accused Chancellor Rachel Reeves of showing “excessive deference” to the Office for Budget Responsibility (OBR) and condemned adherence to what she described as “arbitrary fiscal targets.” Writing in the New Statesman that was published today, she argued: “Originally created to provide an independent check on economic forecasts and help policymaking, [the OBR] has morphed into a gatekeeper of orthodoxy.”

Her comments come at a sensitive moment. The National Executive Committee is preparing the rules for the deputy leadership contest after Rayner’s resignation over an underpayment of stamp duty — a detail that will not have gone unnoticed by mortgage professionals familiar with the system’s complexity. With candidates jostling for support, the leadership vacuum has become a stage for Labour’s unresolved argument about how far the government should loosen the fiscal corset.

Haigh’s thesis is straightforward: that Britain cannot be remade within the rules it has inherited. She cites the OBR’s five-year forecasting window as the clearest example of short-termism, warning that it “often underestimates the long-term returns of public investment and ignores the wider benefits of progressive taxation or public ownership.” According to Haigh, welfare reforms or infrastructure upgrades that save money over decades are dismissed in favour of policies that satisfy the watchdog’s immediate calculations.

Her critique goes further, targeting the Bank of England’s quantitative tightening and the cost of paying commercial banks near-Bank Rate on reserves. “It is beyond comprehension that we have not already reformed our approach to the payment of interest on reserves held in the Bank of England reserves,” she said. By her calculation, billions are being diverted into bank profits while welfare and investment spending are curtailed.

Such arguments resonate with parts of Labour’s grassroots, and with unions pressing for more expansive state action. They also send a nervous signal to markets. Mortgage lenders, who track gilt yields and interest rate expectations with care, will note Haigh’s insistence that “governments should be able to do the same” as bond investors and take a long-term view. If accepted, that logic could encourage higher borrowing in the short term — with knock-on effects for funding costs across the economy.

Reeves’ dilemma

Rachel Reeves, who has made fiscal caution her hallmark, insists the rules are non-negotiable. For her, credibility with markets is the essential condition for stable growth. Yet Haigh counters that this caution risks delivering little difference from Conservative rule. “If we let unelected institutions dictate the limits of change, we betray the people and communities who put their trust in us,” she warned.

The immediate political calculation is about Labour’s balance of power. David Lammy will remain deputy prime minister whatever the outcome, but MPs from the soft left argue Starmer needs a deputy leader willing to channel backbench dissent. Andy Burnham, the Greater Manchester mayor, has urged Haigh to stand, while also calling for a “reset” in the way Labour manages its internal debates.

For the mortgage industry, what matters is not party intrigue but whether the government can navigate the line between stability and ambition. Haigh’s proposals to tax banks more heavily and to adjust the Bank of England’s unwinding of QE could, if pursued, change the macroeconomic backdrop for lenders and borrowers alike.

The argument over fiscal rules is no distant quarrel for those in property finance. If Haigh’s approach were adopted, greater borrowing and looser targets might provide immediate headroom for investment in housing, infrastructure and welfare support - potentially easing some pressures on households. But it also carries risks of higher borrowing costs if markets lose confidence – Liz Truss’s catastrophic mini-budget showed just how unforgiving the markets can be if they smell incompetence.

Mortgage professionals, attuned to volatility in swap rates and gilt yields, will see the deputy leadership contest as a proxy for the future direction of fiscal credibility. Reeves’ commitment to orthodoxy offers reassurance that the state will not test market patience. Haigh’s call for an “economic reset” hints at more radical choices that could unsettle investors, even as she insists that long-term savings justify the risk.

Who’s who in the race for Labour deputy

Here are the principal contenders currently emerging in the race to succeed Angela Rayner as Labour deputy leader:

• Louise Haigh – The former transport secretary and prominent left-wing MP is widely urged to stand, backed by figures like Andy Burnham. Despite attracting support, her past fraud conviction continues to shadow her candidacy. 

• Emily Thornberry – The foreign affairs committee chair is considering entering the contest, voicing concerns about leadership isolation and the need for a more confident and inclusive party direction. 
• Rosena Allin-Khan – Having secured strong support in the 2020 deputy race and known for her soft-left stance, she is again seen as a potential unity candidate bridging party factions. 
• Lisa Nandy – Recently retained as culture secretary, Nandy is favoured by many on the left. 
• Jess Phillips – A popular communicator known for championing women’s rights, she is viewed by many as a fitting successor to Rayner. However, she has reportedly ruled herself out of the race for personal reasons. 

Other names under consideration include: 

• Lucy Powell, who is weighing a run and has backing from Andy Burnham. 

• Richard Burgon and David Lammy are also mentioned as "exploring" their options—but Lammy will remain deputy prime minister regardless. 

Meanwhile, Shabana Mahmood, the Home Secretary, has confirmed she will not run. Former deputy leader Harriet Harman has advocated for the role to be filled by a woman

Bottom line for the housing market

• Stability and lower mortgage costs: More likely if figures such as Thornberry or Allin-Khan shape the outcome, since they align with Reeves’ cautious fiscal line.

• Bolder housing investment and supply growth: More likely if Haigh or Nandy influence the agenda, but this carries short-term risks of higher borrowing costs if markets worry about looser fiscal rules.

The debate underscores a broader truth: Britain’s economic direction is unsettled, and with it the environment in which lenders price loans, borrowers refinance, and the housing market adjusts. For now, the contest for Labour’s deputy leadership is also a contest for the rules that govern the nation’s economic future.