- Healey delivers first budget today with little financial headroom
- Bank windfall tax expected to fund help with energy bills
- Defence spending details likely delayed until next year
- £23.6 billion fiscal headroom expected to shrink
CHANCELLOR John Healey delivers his first budget today with little room to manoeuvre, as rising inflation and borrowing costs squeeze the public finances.
Healey said the budget would offer “breathing space” for households and “targeted support” for businesses.
“We can’t stop these shocks that hit Britain, but we can make Britain more resilient when they do,” he said on Tuesday. “This budget is about getting through this difficult moment.”
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What to expect
Healey is expected to use a windfall tax on banks to fund measures to help households with rising energy bills. Reported options include extending the freeze on fuel duty, more targeted help for the poorest households and a higher minimum wage.
Some measures have already been announced, including tariff cuts on more than 100 imported goods, an expansion of parental pay and investment in AI safety. Healey has also promised to cut “pointless paperwork” for businesses.
Labour has ruled out raising income tax and capital gains tax, which analysts say raises the prospect of spending cuts.
“This budget will largely be a stopgap that will tide the government over before a more significant policy overhaul in 2027,” said Alexander Harvey, UK economist at Oxford Economics. “The measures will be fairly small-scale ones to ease the cost of living.”
Defence decisions delayed
Prime Minister Andy Burnham said the budget would set out how the government will fund the defence investment plans laid out by his predecessor, Keir Starmer.
But Healey, who resigned as defence secretary under Starmer over military funding, is expected to delay until next year details of how Britain will meet NATO’s target of defence spending at 3.5 per cent of GDP by 2035.
Squeezed finances
Healey has pledged to stick to the fiscal rules set by his predecessor, Rachel Reeves, under which day-to-day spending must be covered by tax receipts.
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The government’s £23.6 billion of fiscal headroom is expected to shrink when the Office for Budget Responsibility publishes its latest forecasts alongside the budget, as higher borrowing costs increase debt repayments.
Inflation rose to 3.5 per cent in September, its highest in nearly a year, driven by surging diesel prices linked to the war with Iran. Government bond yields worldwide have hit multi-decade highs, and the Bank of England is widely expected to raise interest rates next month, increasing pressure on mortgage holders.
(With inputs from agencies)
