Chancellor John Healey will deliver his first Budget on Wednesday, October 28, against a backdrop of stretched public finances and international market turmoil linked to the Iran war. Appointed by Prime Minister Andy Burnham in the summer after he took over from Sir Keir Starmer, Mr Healey faces limited scope for major giveaways as households continue to deal with cost of living pressures.
Public finances and fiscal rules
The Chancellor is expected to have significantly reduced headroom against his fiscal rules because of the increased cost of Government borrowing resulting from the Iran war. He is sticking with the rules set by predecessor Rachel Reeves, requiring day-to-day spending to be financed by taxes rather than borrowing by 2029/30, with public debt as a share of the economy set to fall in the same year.
In March the headroom was forecast by the Office for Budget Responsibility (OBR) to be around £24 billion, but the Resolution Foundation estimates that could have halved to £12 billion. The Institute for Fiscal Studies (IFS) thinks it could still be around £20 billion.
Cost of living measures and red tape
Changes aimed at easing the impact of rising costs are expected to feature heavily. The Prime Minister has ordered the Chancellor and Energy Secretary Miatta Fahnbulleh to examine scrapping standing charges from gas bills. He also wants to break the link that allows the price of wholesale gas to set electricity bills, even though the fossil fuel makes up only a small percentage of total generation.
With pump prices soaring, Mr Healey is under pressure to cancel January's planned increase in fuel duty, a levy that has not risen since 2011. The Treasury estimates that reducing paperwork for businesses could save firms around £800 million.
Tax decisions and defence funding
The Chancellor has ruled out hiking capital gains tax, the levy on profits from selling assets, despite calls from within Labour to bring the rate closer to that on earnings. He is reportedly considering increasing the surcharge on bank profits from 3% to 8%, reversing a tax cut introduced by former Chancellor Jeremy Hunt. The Trades Union Congress, a supporter of the move, said the hike on the "bumper profits" of banks would raise £2.25 billion a year, while City representatives have claimed it will stifle investment in Britain.
Mr Healey has promised to fill a £4.7 billion black hole in Britain's defence investment plan (Dip). The Dip, one of Sir Keir Starmer's final major announcements as prime minister, promised an extra £15 billion of funding for the UK defence sector but only committed £10.3 billion, leaving the rest for Mr Healey to find. The extra cash means Government spending on defence will rise to a 2.7% share of the economy by 2027, with the path to Nato's 3.5% target by 2035 set out at the spending review next year. Mr Healey resigned as Sir Keir's defence secretary in a row over funding, arguing that reaching 3% by 2030 was necessary, something the OBR estimates would cost an extra £17.3 billion.
AI, Olympics, devolution and housing
More than £600 million will be committed to projects on the development and safe use of artificial intelligence, including £165 million for a national AI biosecurity initiative, an extra £120 million for the AI Security Institute and £60 million for a national cyber shield using AI to protect against hackers.
A £7 million fund will be used for a feasibility study into a possible future bid to hold the Olympics and Paralympics in northern England. An initial £285 million will be allocated as part of a plan to give mayors and regional leaders in England more money and power to invest in projects in their areas. More than £1 billion will be allocated for social and affordable housing, and a further £432 million will be committed to the rough sleeping programme to get people off the streets in England.
