Healey's first Budget on 28 October faces tax and welfare choices and 3.5% inflation

The Budget and the fiscal squeeze

Chancellor John Healey will deliver his first Budget on Wednesday, 28 October, with the statement expected at about 12.30pm in the House of Commons, immediately after Prime Minister's Questions. Inflation rose to 3.5% in September, and the Iran war has pushed up government borrowing costs, narrowing the room Healey has to manoeuvre. The Institute for Fiscal Studies has warned that he may have to raise taxes, cut the welfare bill, or combine both, by £35bn to avoid cutting budgets for public services. Public debt stands at £3 trillion, according to the Evening Standard.

Headroom under the existing rules

Healey is keeping the fiscal rules set by his predecessor Rachel Reeves. Day-to-day spending must be covered by taxes rather than borrowing by 2029/30, and public debt as a share of the economy must fall in the same year. Estimates of headroom, the buffer against those rules, differ: the Office for Budget Responsibility forecast about £24bn in March, the Resolution Foundation estimates it could have halved to £12bn, and the Institute for Fiscal Studies thinks it could still be around £20bn. Government borrowing rose to £24.5bn in September, above forecasts. The FT reports that the 10-year gilt yield surged above 5.5% in October, its highest since 2007, which by FT calculations would mean a near £12bn hole in the public finances. The yield has since eased to 5.37%.

OBR forecast (March)24

Resolution Foundation estimate12

IFS estimate20

OBR forecast (March)

24 £bn

Resolution Foundation estimate

12 £bn

IFS estimate

20 £bn

Data from the article text

Investors want no surprises

Fund managers told the FT they want a disciplined Budget that leaves the fiscal rules alone. April LaRusse, co-head of global client portfolio management at BNY Investments, wants a buffer of around £15bn to £20bn kept in place and any energy support fully funded. Andrew Chorlton, fixed income chief investment officer at M&G, says his firm is overweight gilts and wants no mention of wiggle-room and no increase in borrowing.

“Bond investors are looking for reassurance, not surprises, from the UK Budget.”

Gilts have outperformed French and Italian bonds because investors were reassured that Prime Minister Andy Burnham's government will stick to the economic tramlines set by Keir Starmer. The IMF has endorsed the UK for standing out among G7 countries for at least planning to cut borrowing. The UK is the fastest growing G7 country in 2026 so far, at 0.6% in Q1 and 0.5% in Q2. A Bank of England rate rise is very much on the cards, which would lift some mortgage repayments.

Energy bills, fuel duty and tax

Prime Minister Andy Burnham has ordered Healey and Energy Secretary Miatta Fahnbulleh to examine scrapping standing charges on gas bills and to break the link that lets wholesale gas set electricity prices. Healey is under pressure to cancel the fuel duty increase planned for January, as the rate has not gone up since 2011. He is reportedly looking at spending over £1bn on a larger Warm Home Discount, the £150 yearly rebate for households on qualifying means-tested benefits, with a possible extra £100 on top. Healey has rejected a rise in capital gains tax at this Budget, despite calls from within Labour. He is also reportedly considering lifting the surcharge on bank profits from 3% to 8%, reversing a cut launched by Jeremy Hunt, a change the TUC says would raise £2.25bn a year.

Current surcharge3%

Under consideration8%

Current surcharge

3 %

Under consideration

8 %

Data from the article text

Gambling, business and young people

Ninety Labour MPs have co-signed a letter to Healey calling for a higher Machine Games Duty on Category B machines, the cash-prize slot, fruit and quiz machines found in bingo halls and arcades. The Social Market Foundation proposes doubling the rate on affected machines from 20% to 40%, which the Bingo Association says would make 102 clubs loss-making. Sarah Calakovic, regional manager at Buzz Bingo in Medway, Kent, told BBC South East that a 5% rise could push 40% of the company's clubs into loss-making territory.

Gideon Salutin, chief economist at the Social Market Foundation, argues that the state bears the costs of problem gambling.

“We calculate that the state covers about £700m in additional costs associated with gambling every year.”

Young graduates are also pressing for change. Toby Whelton, a 24-year-old researcher, wants the Plan 2 repayment rate cut from 9% to 5%, and the £29,385 earnings threshold, which has been frozen several times, addressed. Dan Johnson wants income tax thresholds to stop being frozen.