Chancellor John Healey to deliver first Budget on 28 October
Chancellor John Healey will deliver his first Budget on 28 October, pledging to move “money and power out of Westminster”, reports BritPanorama.
In announcing the date of the Budget, Mr Healey committed to plans built on “fiscal discipline.” He stated that the Budget would “meet our fiscal rules” and provide businesses and families with the stability necessary for future planning.
Reflecting on Prime Minister Andy Burnham’s early tenure, Mr Healey remarked that the new government is “working fast to restore hope and back Britain’s communities” and has started to “kickstart growth in every postcode.” Nevertheless, he faces notable challenges in sourcing additional funds for Mr Burnham’s devolution agendas and addressing increased defence spending amid rising pressures linked to the ongoing conflict in Iran.
The start of Mr Burnham’s premiership has prompted a series of announcements that will likely require increased spending from Mr Healey. These announcements encompass cost-of-living measures such as cutting VAT on energy bills and lowering business rates for pubs, alongside radical plans for devolution and an expansion of technical training in schools.
Furthermore, Mr Healey will need to outline how the Government will finance £5 billion earmarked for defence spending as per May’s Defence Investment Plan (DIP), particularly without providing specifics on funding sources.
Additionally, he is under pressure to escalate funding further, having stepped down as defence secretary prior to the DIP’s publication, arguing that it insufficiently addressed the needs of the armed forces.
Experts have cautioned Mr Healey that he must either raise taxes or implement spending cuts elsewhere, as the current strain on public finances leaves little scope for increased borrowing. The National Institute of Economic and Social Research (NIESR) has indicated that the ongoing conflict in Iran is likely to precipitate sustained inflation and rising interest rates.
NIESR’s deputy director for macroeconomics, Stephen Millard, has recommended that Mr Healey examine the welfare budget or pension policies, such as the triple lock, for potential cuts. He also raised the prospect of increasing income tax, which could contravene Labour’s 2024 manifesto commitment against raising such levies.
This manifesto pledge, alongside the fiscal constraints set by Rachel Reeves concerning borrowing, is expected to limit Mr Healey’s flexibility to manoeuvre economically.
In correspondence with Commons Treasury Committee chairwoman Dame Meg Hillier, the Chancellor reaffirmed his dedication to fiscal discipline, asserting, “Fiscal credibility is the bedrock of economic stability and national security.” He emphasized that adherence to fiscal rules is essential to maintain a buffer against unpredictable circumstances, especially given tensions in the Middle East.
Ms Reeves, in her last Budget, established a £22 billion buffer relating to her fiscal rules. However, persistent inflation driven by the Iran conflict could potentially diminish this financial cushion.
As the Budget approaches, the challenges ahead are substantial and could define the new government’s economic trajectory.
