John Healey used his first Budget to paint a picture of tricky economic times ahead – then set out a range of populist giveaways to provide ‘breathing space’ for hard-pressed households over the coming months.
The Chancellor blamed the Iran War for forecasts which see growth remaining relatively low – and borrowing staying stubbornly high – for at least the next five years. Inflation – destroyer of governments around the world - is set to rise to 3.4 per cent next year, and only to fall to the government’s 2 per cent target in 2030.
Despite the gloomy outlook, Healey claimed his Budget had been able to avoid both ‘broad-based tax rises’, such as the controversial national insurance increase which hit businesses under his predecessor Rachel Reeves two years ago, and ‘slashing’ public spending.
He did this by cutting the Treasury’s fiscal ‘headroom’ – the flexibility built into the government’s tax and spending plans – from £24billion to £15billion, a well-trailed move which, immediately at least, succeeded in not spooking either the bond markets or the pound.
The reality is somewhat more nuanced – significant spending cuts remain pencilled into government forecasts for 2028 and 2029. The latest date the next general election can be held in August 2029.
And Healey’s Budget is raising taxes – in particular on the banks, the gambling sector and landlords - to pay for his giveaways specifically designed to tide households over the next few months.
The Chancellor said he was delivering a Budget for ‘British business, big and small’ but in truth his support was largely focussed on the latter, with the threshold for rates relief increased from £12,000 to £18,000
The closest thing was to a Budget ‘rabbit’ from the hat was a surprise £100 ‘household energy payment’ to help with bills over the winter for 20million homes in council tax bands A-D. The government’s council tax webpage predictably crashed immediately after the announcement.
Fuel duty will be frozen until July 2027, and the current VAT cut on energy bills will be extended until the same month.
Andy's mandate?
With these small but populist measures, many Labour MPs believe there are increased chances of a general election before next summer which, if successful, would give the Prime Minister his own mandate. Andy Burnham himself did nothing to dampen down speculation by telling MPs he would soon be ‘writing to the cabinet’ about closer links between Britain and the European Union, a move he said was welcomed by leading business organisations.
The Prime Minister, under cross-examination from Tory leader Kemi Badenoch, repeatedly refused to rule out a referendum on Britain re-joining the EU.
While the Government edges closer towards a centralised Europe, at home the reverse process is in play with Healey promising a devolution ‘roadmap’ which will see local authorities retain 100 per cent of business rates by 2030. Mayors will get a share of income tax receipts from 2028.
He committed to spending 3.5 per cent of Britain’s gross domestic product on defence by 2035 but said the details of how this would be paid for would wait until next year’s Spending Review.
Similarly the thorny issue of how to bring down the country’s welfare bill without attracting a rebellion among Labour MPs, one of the key factors behind the fall of Keir Starmer, was kicked down the road.
Pressed on an early election, the Prime Minister attempted to rule one out 'for the next year'. But many on his own side don't believe him and think that weighty tax and spending issues will not be properly addressed until Burnham, fortified by Labour’s continuing opinion poll lead and his own relative popularity compared to other party leaders, takes his chances at the ballot box.
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