UK chancellor Healey sets first budget for 28 October, tells ministers to find cuts for Burnham's pledges

Budget date confirmed

Chancellor John Healey announced on Friday that his first budget will be held on Wednesday, 28 October, giving the new government three months to find ways to fund ambitious spending plans while sticking to the fiscal rules inherited from Rachel Reeves. In a video message, Healey said the budget would be "built on fiscal discipline" and would "move money and power out of Westminster, and into every postcode around Britain."

“This will be a Budget that moves money and power out of Westminster, and into every postcode around Britain. It will be built on fiscal discipline. It will meet our fiscal rules. It'll give businesses and families some of the stability they need to plan for the future.”

The scheduled date is almost a month earlier than Reeves' autumn budget last year, which was delivered on 26 November. The announcement marks the start of the formal forecast preparation and policy scrutiny process between the Treasury and the Office for Budget Responsibility, whose projections will determine whether the government is on course to hit its fiscal targets.

Cabinet told to find cuts

Healey and Prime Minister Andy Burnham sent a joint letter to cabinet ministers informing them that no new money is available for the prime minister's recent policy announcements. Departments must instead "reprioritise" their existing budgets to fund new priorities.

“We've written to the Cabinet to say that if we're serious about new priorities as a second-stage Labour Government we have to be serious about -- and they have to be serious about -- reprioritisation of their plans, their budgets. They need to pay for the new things they want to do this year and next year within the budgets they've already got.”

The letter called on departments to be "disciplined on spending, looking at the tough choices and being ready to shift funding away from unproductive or legacy programmes that no longer reflect this administration's priorities."

Spending pressures mount

Since taking office earlier this month, Burnham has announced a series of costly measures, including a 5% cut in VAT on energy bills, reduced business rates for pubs, clubs and live music venues, a £2 cap on bus fares, and a pledge to give England's regional mayors a share of income tax revenue for the first time. He has also promised radical devolution across England and an expansion of technical training in schools.

These commitments come against a deteriorating fiscal backdrop. Ten-year benchmark gilt yields remain above 5%, near the post-2008 high set during the Iran war, pushing up government borrowing costs. Analysts say the combination of higher borrowing costs, a weaker growth outlook and new spending commitments could reduce the chancellor's headroom against his key fiscal rule to less than half the £23.6 billion forecast in March. Reeves left a £22 billion buffer in her last budget, but persistent inflation caused by the Iran war may have eroded it.

Defence spending and fiscal rules

Healey will face particular pressure over defence funding. He resigned as defence secretary ahead of the publication of May's Defence Investment Plan, arguing it did not provide enough money for the armed forces. The government must now explain how it will fund £5 billion of defence spending announced in that plan. Healey would not commit to raising defence spending to 3% of GDP by 2030 but indicated it could feature in next year's spending review.

“At the spending review, we will set out a clear path to meeting our 3.5% Nato commitment in 2035 and we will set a target date on that path for 3%.”

The government has pledged to stick to Labour's fiscal rules, including balancing day-to-day spending with tax revenues by the end of the decade, and to its 2024 manifesto promises not to raise income tax, VAT or national insurance contributions. Burnham has acknowledged that meeting the fiscal rules might mean "having to ask for a little more" on tax, though he has not specified where.

Political reaction

Sir Mel Stride, the Conservative shadow chancellor, called for Healey to focus on "controlling public spending, especially welfare." Burnham told the BBC this week the UK had to "get really serious as a country" at reducing the welfare bill and outlined measures to get more young people into work. An influential think tank warned earlier this week that the prime minister has only a small margin of error to meet the fiscal rules, and that Healey may have to cut spending or raise taxes to fund Burnham's priorities on defence and social care.

Fiscal buffer (March forecast)23.6

Reeves' March budget buffer22

Unfunded defence plan (DIP)5

Fiscal buffer (March forecast)

23.6 £ billion

Reeves' March budget buffer

22 £ billion

Unfunded defence plan (DIP)

5 £ billion

Data from the article text