Healey's UK Budget 2024: Navigating a Challenging Economic Moment
Overview and Key Measures in Healey's Budget
By William Schomberg
LONDON, Oct 28 (Reuters) - British finance minister John Healey is set to announce a cautious budget plan on Wednesday as he tries to avoid piling more bond market pressure on the new government of Prime Minister Andy Burnham.
Taxation and Support for Households
Banks, gambling firms and online marketplaces such as Amazon and Temu are expected to be hit with higher taxes. That would help to pay for support for poorer households facing high energy bills and to freeze fuel duty for drivers.
Healey's Approach and Economic Context
Healey – a former trade union official and a junior Treasury minister in the 1990s – says he wants to give Britain "a bit of breathing space" from the impact of the US-led war on Iran that is pushing up inflation.
"This budget is about getting through this difficult moment. But it's also about putting Britain on a future path, a better future path," he said in a statement.
Devolution, Defence and Debt
Regional Powers and Investment Initiatives
His first budget – due to be announced in parliament just after 12:30 p.m. (1230 GMT) – will detail how the government plans to give regional mayors more control over tax revenues, part of Burnham's devolution push.
Separately, more than £20 billion in extra support will go to state finance institutions to spur investment in artificial intelligence, defence and green energy by the early 2030s.
Government Role and Fiscal Constraints
On entering Downing Street in July, Burnham promised "the biggest changes in the last 40 years", including a bigger role for the state in the economy.
But Healey's options are limited by the surge in borrowing costs for governments around the world including Britain, where investors remember the 2022 "mini-budget" of former Prime Minister Liz Truss and the ensuing bond market meltdown triggered by its unfunded tax cuts.
On Tuesday, Britain paid the highest interest on a 5-year government bond since 2008.
Recent Fiscal History and Market Reactions
After big tax and spending increases in the two budgets of the previous finance minister Rachel Reeves, Wednesday is being framed as a "steady as she goes" moment for Britain's economy, which has so far withstood the Iran war energy price shock.
Bond dealers polled by Reuters expect less than £10 billion in extra debt issuance this financial year, compared with April's forecasts, though they see financing needs for next year being revised up by more than £25 billion.
In an attempt to ease some of Reeves' big tax hit on employers, Healey has said he would reduce paperwork for businesses to save them £800 million a year.
Future Policy and Defence Spending
Bigger policy changes – including how to fix the inflation hit to public spending – are likely to have to wait for a 10-year plan that Burnham has said he will announce later this year and a broad spending review in 2027.
But Healey is under pressure to say now how he intends to pay more for defence – an issue that caused him to quit as defence minister in June in a move that hastened Keir Starmer's resignation as prime minister.
Possible savings from reforms to Britain's fast-growing welfare spending could offer a bit of latitude later this year.
Public Debt and Fiscal Targets
But Healey's biggest hope is for an end to the Iran war, which would lower the government's bill for servicing £3 trillion of public debt. That was already on course to gobble up more than 10% of public spending before the war began.
He has said he would stick to the government's fiscal targets, key for maintaining the confidence of the bond market.
Britain's budget forecasters are expected to say on Wednesday that the margin for meeting the more challenging target has fallen to £15 billion, from £24 billion in March.
Low-Cost Policies and Public Response
The Treasury has announced a string of low-cost policies to try to show it can still help voters, including tariff cuts on some imported goods including gherkins and marmalade.
Sarah Coles, head of personal finance at investment platform AJ Bell, said targeted tax changes could help carers and parents. "For others they will be a drop in the ocean. Hard-pressed households will be hoping for more support," Coles said.
(Writing by William Schomberg; Editing by Alex Richardson)
