2nd term (2005–2010)
At the 2005 general election, Byrne was re-elected as MP for Birmingham Hodge Hill with an increased vote share of 48.6% and an increased majority of 5,449. Following the election, Byrne was appointed Parliamentary under-secretary of state for Care Services at the Department of Health led by Secretary of State Patricia Hewitt.
A vocal campaigner for Road Safety, Byrne handed a petition in to Parliament in 2005 demanding tougher punishments for dangerous drivers. He sat on the parliamentary committee that shaped the Road Safety Act 2006, which increased fixed penalty fines for driving while using a mobile. In November 2007, he was fined £100 and received three points on his driving licence for using his mobile phone while driving.
Following the 2006 local elections, he was promoted in place of Hazel Blears as Minister of State for Policing and Counter-terrorism at the Home Office. However, just a fortnight later Home Secretary John Reid transferred him to the Immigration role, switching portfolios with Tony McNulty. Byrne's move was seen as an attempt by Reid to reorganise a dysfunctional immigrations system which Byrne completed, as well as establishing UK Border Agency, introduced a points system and developed the idea of earned citizenship. During this period he was also Minister for the West Midlands.
In November 2006, Byrne was responsible for a change to Immigration Rules preventing migrants who had entered under Britain's Highly Skilled Migrant Programme (HSMP) having permission to remain in Britain extended, unless they could show both that they had been earning at least £32,000 pa while in Britain and also that they had a good knowledge of English. This change was controversial because it applied retrospectively to immigrants who had entered Britain under the old rules, meaning the British Government had "moved the goalposts"–a degree became effectively an essential requirement, regardless of the skills or economic contribution that an individual could demonstrate.
In its report into the changes, the Parliamentary Joint Committee on Human Rights said that "The changes to the Rules are so clearly incompatible with Article 8, and so contrary to basic notions of fairness, that the case for immediately revisiting the changes to the Rules in Parliament is in our view overwhelming". Appeal cases have been won on appeal on the grounds that applicants had a legitimate expectation that the rules would not change to their detriment. A judicial review was successfully brought against the Government, with their actions when applying the new HSMP rules to those HSMP holders already in Britain as at 7 November 2006 being ruled as unlawful.
In May 2007, Byrne announced a consultation document which he said was about "trying to create a much more hostile environment in this country if you are here illegally". This eventually led to the controversial Conservative Home Office hostile environment policy. Byrne was promoted in a Cabinet reshuffle on 3 October 2008, becoming Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster.
In June 2008, Byrne suggested the "August bank holiday" be made a weekend of national celebration in a speech to a New Labour think tank. Scotland's August bank holiday being held on a different date from that in Wales and England, he later retracted his suggestion – after pressure from the Scottish National Party – saying he was merely trying to "get the debate started".
In November 2008, an 11-page memo written by Byrne entitled "Working With Liam Byrne" was leaked to the press. In the memo, Byrne listed his demands from his staff, memorably including his requirement for a cappuccino on his arrival in the office, soup between 12:30 pm and 1 pm and an espresso at 3 pm. Byrne also instructed officials to tell him "not what you think I should know, but you expect I will get asked". He warns staff that they should "Never put anything to me unless you understand it and can explain it to me in 60 seconds... If I see things that are not of acceptable quality, I will blame you". The Guardian described Byrne as an "eager diva".
On leaving his position as Chief Secretary to the Treasury following the change of British Government in May 2010, Byrne left a note to his successor David Laws saying: "Dear Chief Secretary, I'm afraid there is no money. Kind regards – and good luck! Liam". Byrne later claimed that it was just typical humour between politicians but regretted it since the new government used it to justify the wave of cuts that were introduced. The note echoed Chancellor Reginald Maudling's note to James Callaghan: "Good luck, old cock ... Sorry to leave it in such a mess" after the Conservatives' defeat at the 1964 election. This note was frequently referenced by the following coalition government of Conservatives and Liberal Democrats to criticise the financial record of the previous Labour Government, and used as a visual prop by David Cameron in the Question Time debate preceding the 2015 general election. Following the party's election defeat, Byrne stated he had been "burnt with shame" since 2010 over the note which had harmed the 2015 election campaign.
