LONDON — John Healey wants to keep his debut budget low-key — but he’s also got to show the British public his boss really does feel their pain.
The chancellor delivers the first financial statement of the Andy Burnham era Wednesday. The pitch? “Breathing space for today” mixed with some “fresh hope for the future.”
But with war in Iran driving up costs worldwide, government borrowing at its highest level in a year, and businesses warning they’re taxed to the max, Healey is up against it.
Here’s how POLITICO’s team of reporters will be poring over the big fiscal moment, unveiled at 12.30 p.m. U.K. time Wednesday.
U.K. Political Editor Dan Bloom
I’ll flip straight to the big table two-thirds of the way through the ‘red book,’ where Treasury officials list the total tax rises and spending cuts, and then the “headroom” against Healey’s fiscal rules in the executive summary.
The briefing suggests these numbers will be smaller than the £26 billion in tax rises and £23.6 billion in headroom former Chancellor Rachel Reeves notched up in March this year.
The Treasury has turned this into its comms strategy, pointing to “everyday fixes” and non-tax measures like scrapping business red tape. But these numbers will also show how Donald Trump’s war in Iran has reined in Burnham’s ambitions.
And they are indicative of something else — the budget just isn’t the main event this time. In the next seven weeks or so we’re expecting [former minister] Alan Milburn’s review of the benefit system, a U.K.-EU summit, a “10-year plan” and a white paper on “rewiring the state.”
Then next year is the spending review. That’s when the really hard choices will come — and the budget will give us a sign of how hard, since it will map out a path for departmental spending over the next few years.
U.K. Political Correspondent Sam Blewett
Andy Burnham’s team has been speaking a lot about “everyday fixes” — cheapo policies that can rectify real-life niggles.
Headphone dodgers? You’re fined. Being ripped off by parking fines? We’ve got your backs. Balking at the cost of the supermarket shop? Gone are the tariffs on your gherkins.
That will buy the government a fair amount of goodwill, building a sense that the government isn’t entirely a useless beast being buffeted by global horror shows. But it’ll only go so far.
Healey is under pressure to show bold action on what really matters too — actual interventions that bring down the cost of living. We know already there will be support for household energy bills, a fuel duty freeze, support for pensioners and a hike to the minimum wage. All eyes will be on whether Healey has any more surprises on this front.
As costly as any support is for the exchequer, will it all pale in comparison to the effects of the Strait of Hormuz-sealing war with Iran? This is a self-declared “cost of living government” after all.
First, I’ll scour watchdog the Office for Budget Responsibility’s forecasts to see where the semi-official number crunchers reckon real household disposable income is headed. Then the analysts at the Institute for Fiscal Studies and the Resolution Foundation will provide more insight.
After that, the voices that really matter will be those sitting down to ever-costlier dinner, nursing pricy pints and rolling their eyes at the petrol pumps. Will this budget give Brits enough reason to believe Burnham’s new government is a force for good, trying to ease the pain? Or will they deem the new-look administration just the same old ineffective bureaucrats who need sweeping away in favor of a more radical response?
Senior Foreign Correspondent Esther Webber and U.K. Defense Reporter Mason Boycott-Owen
The number one thing we’ll be looking out for in today’s budget is how exactly Healey — who quit as defense secretary in the dying days of Keir Starmer’s government over exactly this issue — tries to demonstrate he is raising defense spending against a tough backdrop.
The chancellor has tried to manage expectations for the Ministry of Defence at the budget pretty closely, initially stating that he would only seek to cover a £4.7 billion pound shortfall in its already-unveiled Defence Investment Plan.
In recent weeks, however, the Treasury has suggested he could do more to show the U.K. is moving towards spending 3% of GDP on defense, something Healey sees as an important marker on the way to meeting the NATO target of 3.5%.
Media reports leading up to Wednesday suggest an increase will come from money funneled into the British Business Bank and National Wealth Fund.
But could he have something else in his back pocket? Healey is well aware of the potential for awkward questions about his commitment to follow through on the promises he made just four months ago that he said were crucial to U.K. security, now that he’s in charge of the money.
Financial Services Reporter Eleanor Myers
A hike in bank taxes is all but inevitable in today’s budget – but the City of London will be nervously watching how high the increase goes. Along with the lenders, I’ll be looking out for how much taxes are raised, whether any changes are temporary, and whether the City — Britain’s financial powerhouse — gets anything in return.
The easiest move for Healey is to increase the surcharge banks pay on top of corporation tax. That currently stands at 3%, after Conservative Chancellor Jeremy Hunt reduced it from 8% in 2023 to account for higher corporation taxes. Healey could simply reverse the surcharge to 8%, which would be unpopular with the banks and might not even go far enough for campaigners: the Trades Union Congress has called for an increase to 16%.
I’ll also be closely watching for how the bond markets react to the first budget under Burnham. Despite the prime minister describing Britain as “in hock” to the bond markets before he took office, odds are on for a “boring” budget, without any huge spending commitments that might spike borrowing costs.
But any cautious policy changes designed to placate the bond market will have to be tempered alongside demands from the Labour Party. It’s a tricky balance, and Labour MPs showed under Keir Starmer that they were willing to rebel when it mattered.
Senior U.K. Energy Correspondent Charlie Cooper
A sharp, painful spike in energy bills is coming for Britain; at this budget we’ll find out how much power Healey and Burnham have to help.
The latest energy price cap forecasts are brutal. Energy firms expect average, annual household bills to rise by more than £450 in January. They could go even higher in April. Why? Mainly because of gas. The fallout from the U.S.-Israeli war with Iran has sent wholesale prices soaring to levels not seen since December 2022.
Healey knows how bleak things look, but he may not have the fiscal firepower to offer much help. Burnham has hinted at removing gas standing charges from bills, which could save an average household a modest £27, according to one estimate. Meanwhile, payments to around 6 million low-income households — the Warm Homes Discount — are likely to get a top-up of between £100 and £150.
Businesses, meanwhile, could get details of a 10-year plan to bring their energy costs into line with European competitors, according to two people familiar with budget preparations.
But with the cost of living and cost of doing business set to rise so high, will that be it?
There’s “strong awareness” inside government “of how bad it will get,” said one senior government official. Unfortunately, they added, there are “not the pockets deep enough to do all the things we might like to do.”
Elsewhere, we’ll be watching closely to see whether net zero schemes — like the rollout of electric heat pumps — could face cuts to cover shortfalls in defense spending.
Technology Reporter Joseph Bambridge
Healey put AI and innovation at the heart of his growth plan in a pre-budget speech back in September.
In that vein, the government has trailed a £600 million spending package to protect the U.K. from AI risks while growing its own share of the sector, calling it a “distinctively British” approach to mitigating risks from the technology while capturing the benefits.
The question now is whether more measures to support the U.K.’s tech and AI sector will come on Wednesday, with trade groups calling for bold moves to lower energy costs, tackle energy and planning delays, and help firms invest in AI and upskill workers.
Startups are also hoping for tax relief and further reforms to regulation and procurement rules. A relief for founders who re-invest their earnings in the U.K. has been a particular demand from the startup community, which has already bagged a win after Healey ruled out raising capital gains tax.
AI is also likely to play a significant role in the government’s plans to make Whitehall more efficient, as it did under Reeves.
The sector is also closely watching how the chancellor plans to meet his defense spending targets, in the hopes that drone makers and military tech firms might benefit from the uplift.
Trade Reporter Caroline Hug
I’m looking out for the chancellor’s VAT crackdown on foreign sellers, who register as U.K. based companies to avoid paying the tax. Healey is expected to make online marketplaces like Amazon, eBay and Temu responsible for collecting tax owed by all retailers.
We’re also waiting to see whether the government has more information on its de minimis crackdown, including whether it will introduce a handling fee for small packages below £135. The EU already has one in place.
Finally, we’ll be looking out for any more detail on the government’s suspension of tariffs on more than 100 food, drink, fuel and fertilizer products.
UK budget 2026: What to watch for as Healey vows ‘breathing space’ for Brits
Source: Viral Showbiz Pinay
0 Comments