Chancellor John Healey will deliver his first budget on Wednesday, acknowledging that the UK faces a "difficult moment" while attempting to signal "fresh hope for the future" by easing cost of living pressures on households. The Guardian reported that Healey said conflicts abroad are pushing up energy prices and piling pressure on families, businesses and public finances. Despite international uncertainty, the budget is expected to be relatively modest as the government grapples with stretched public finances worsened by market turmoil caused by the Iran conflict, with important decisions on tax and spending deferred until next year.
Healey has committed to easing the cost of living "responsibly" by sticking to Labour's self-imposed fiscal rules. Changes aimed at addressing cost of living pressures are expected to feature heavily in the announcement. The chancellor is expected to offer temporary support for poorer families before energy bills rise steeply in January, while also pledging longer-term energy market reforms. Andy Burnham recently told MPs he was keen to see the gas standing charge, a fixed daily levy on all users, abolished, which would reduce bills for low-energy consumers. Industry experts fear that further investment in hydrogen and carbon capture is likely to bear the brunt of efforts to control extra spending, potentially affecting the UK's net zero targets.
Additional measures include ending the carers' allowance cliff edge, which has penalised unpaid carers for exceeding their earnings limit, and cancelling January's planned increase in fuel duty. Healey is also expected to increase the minimum wage by nearly 4% but slow the rise for younger people under 21 after warnings that they are being priced out of jobs. The government will shield nearly one million people from paying income tax and make the Help to Buy scheme more generous to support middle-earners.
To offset damage to public finances, Healey is poised to raise taxes for Britain's banks, potentially reversing cuts to the bank surcharge made by Jeremy Hunt, which could raise upwards of £2bn annually. Online retailers will be responsible for collecting tax owed by firms selling on their platforms. The government also expects to confirm investment in defence industries as a "downpayment" towards hitting the 3% of national income defence spending target by 2030, though the detailed timetable will be confirmed next year. A "roadmap" to devolving more tax revenues to local leaders will also be announced.
The backdrop for the budget reflects deteriorating economic conditions. The Government had to pay the highest yield on new five-year bonds since 2008 on Tuesday, above 5%, raising the cost of government borrowing. Inflation hit an in-year high of 3.5% last month. Consumer confidence has fallen at the fastest rate since Brexit, while the number of businesses in financial distress has hit its highest level in more than two decades, according to data published by consultancy BTG, with hospitality and construction hardest hit. Markets are expecting the Bank of England to hike interest rates four times, to 4.75%, over the next 12 months.
For UK households and businesses, the budget will determine whether they receive relief from rising energy bills and improved support for carers, while higher interest rates on government debt could constrain future public spending that affects public services and welfare.