Burnham and Healey’s first move

John Healey presented his first Budget as Chancellor of the Exchequer yesterday: a prudent budget, which emphasises increased public investment – £20.4 billion for the National Wealth Fund and the British Business Bank – and subsidies to tackle high energy costs. The Budget extends the zero-rate VAT on energy bills until July and allocates 2.6 billion for a one-off payment of 100 pounds to 20 million households to help with their winter energy bills. At the same time, Healey has postponed until 2027 the decision on increases in defence spending – which is to be raised to 3 per cent of GDP by 2030 – limiting herself to finding the £4.7 billion shortfall for the military plan already approved (the one that led to Healey’s resignation as Defence Secretary in the Starmer government, after she was accused of failing to allocate the necessary resources)A 3-point increase in the bank levy is planned for 15 months: a lower levy than feared, as reflected in the rising share prices of Lloyds and Barclays. For security and AI, however, 500 million has been allocated. Healey has assured that the budget complies with UK budgetary rules, meaning that in 2029–30 revenue must cover all current expenditure, from pensions to interest payments (debt may only be used to finance investment). The Office for Budget Responsibility (OBR) confirmed yesterday that Healey’s measures will add 15.4 billion to the deficit over three years and forecasts a surplus for 2030 that has fallen from 23 to 14.5 billion pounds in just a few months, mainly due to rising interest rates and inflation. For 2027, the OBR has cut its growth forecasts for the UK from 1.6 per cent to 1 per cent and expects real wages to remain stagnant against a backdrop of 3.5 per cent inflation. Conservative MP Kemi Badenoch commented on this, accusing the government of postponing difficult decisions, whilst the tax burden is set to reach a record high in 2027, because, in her view, Burnham wants to keep the door open for an early election. In any case, the UK 10-year gilt has remained stable on the markets.