John Healey has called for a restoration of confidence about Britain as he enters the final fortnight of preparations for his first Budget, acknowledging that historic high borrowing costs have severely complicated his task while refusing to rule out tax increases on 28 October.
In a wide-ranging interview with the BBC, the Chancellor said that doubling down on more growth generated in more places would be the central theme of his statement, and insisted the government was responding calmly to what he called extreme pressures in the wider market.
No denial on taxes
Asked directly whether taxes would rise, Mr Healey declined to comment on specific measures, saying only that staying true to the government's values meant being honest about the need to control spending. He reiterated that ministers would honour the manifesto pledge, first made under Sir Keir Starmer and Rachel Reeves, not to increase taxes on working people, a commitment understood to cover income tax, National Insurance and VAT.
That promise leaves the Chancellor scanning a narrowing field of options. Analysts at KPMG estimate that the headroom against his fiscal rules has shrunk from 23.6 billion pounds, as calculated by the Office for Budget Responsibility in March, to around 12 billion pounds, largely because of the surge in government borrowing costs that pushed 30-year gilt yields to their highest level since 1998 last week.
The Budget Picture at a Glance
- John Healey delivers his first Budget on Wednesday 28 October, followed by four days of Commons debate.
- The Chancellor has refused to rule out tax rises but says the manifesto pledge on income tax, National Insurance and VAT holds.
- Fiscal headroom is estimated to have halved from 23.6 billion pounds to about 12 billion pounds as gilt yields hit a 28-year high.
- A decision on whether to extend the long-running fuel duty freeze is expected in the statement.
- Labour figures describe a low-key statement centred on fiscal devolution, energy bills and small business support, with bigger decisions deferred to next year's spending review.
Blame shared between markets and predecessors
Mr Healey blamed too high borrowing costs on global events, including the energy shock that followed the Iran war, and on what he described as 14 years of Conservative misrule: austerity under David Cameron, Brexit under Boris Johnson and Liz Truss's mini-budget. The Tory leader, Kemi Badenoch, used the first Prime Minister's Questions of Andy Burnham's premiership last week to accuse the government of losing the confidence of the markets, telling Mr Burnham he must choose between higher taxes, more borrowing or spending cuts, and branding him a people-pleaser rather than a leader.
The political pressure is not coming only from the opposition. Labour figures have told the Guardian of growing nervousness on the backbenches that the Budget will prove too timid, with one insider warning that if voters are not better off by the next election the party is, in their word, screwed. Treasury sources accept the charge that the statement will be low-key, but argue that a household support package centred on energy bills, together with help for small businesses and a significant devolution of fiscal powers, will show direction of travel.
Decisions deferred, and one that cannot be
Much of the heavier lifting is expected to wait for next year's spending review, alongside the publication of the Milburn and Timms reviews into welfare, which ministers hope will help them counter Tory and Reform attacks on the benefits bill. The Prime Minister has signalled that funding to raise defence spending to 3 per cent of GDP by 2030 will be found by that review.
One decision cannot be deferred, however. The freeze on fuel duty, extended in May when a planned 3p rise was pushed back to the end of this year, expires within weeks. Mr Healey has said the Budget is the place and time to deal with petrol and diesel costs, and motorists, already watching pump prices climb on the back of dearer crude, will learn on 28 October whether the respite continues.