Healey’s pre-Budget headache

With conference season over and by-election campaigning at an end, all eyes in SW1 are turning towards the Chancellor ahead of his first Budget in around two weeks’ time.

It is an almost mammoth task that falls on John Healey’s shoulders: demonstrate a break with the neoliberal past with measures that address the cost of living, while also finding the money to properly fund defence, support struggling small businesses, address the NEETs crisis, and give the country suitable fiscal headroom.

That would be a difficult enough balancing act on its own – but Healey has to make those changes while the economic headwinds are against him, with an economy that remains sluggish, and with the need to ensure the government’s fiscal rules remain credible.

As the Chancellor explained in his party conference speech, New Labour inherited public services in an abysmal state, but had the economic growth and financial capital to fix them. “The money New Labour had in the nineties is simply not there now,” he told delegates in Liverpool.

His job has been perhaps made more difficult, as economists from the Institute for Fiscal Studies warn this morning that tax rises or spending cuts will be needed to plug a £35 billion gap in the nation’s finances. With little room for manoeuvre, especially with the government’s commitment to its manifesto pledges on tax, the Chancellor faces difficult choices over whether to raise additional revenue or scale back its ambitions.

With all that in mind, you can perhaps forgive Healey for not having a spring in his step as MPs return to Westminster.

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With the Chancellor and his top team keeping tight-lipped on the measures that might be included in the Budget on October 28, rumours abound. Over the weekend, the Sunday Times suggested measures could include further intervention on energy bills, alongside a two percent online sales tax to fund proposed business rate cuts and a rise in the banking surcharge – a move called for by TUC General Secretary Paul Nowak. Meanwhile, The Guardian reported this morning that savings might be made to heat pump subsidies to fund defence spending.

Such proposals point towards a Budget that tries to spread the burden across different parts of the economy, but each comes with its own political risks. Further intervention on energy bills would need to have a meaningful and noticeable difference to household finances, while any cuts to the heat pump programme will no doubt anger environmentalist groups – particularly with announcements on Rosebank and Jackdaw expected soon.

Healey’s challenge will be addressing immediate pressures to both household and the nation’s finances, while delivering on the government’s wider ambitions. Whatever is revealed on October 28, one thing is certain: ‘steady as she goes’ is not an option for dealing with the numerous challenges Britain faces on all fronts.

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