Chancellor John Healey Prepares First Budget, Promises Nothing, Rules Out Even Less

Chancellor John Healey will deliver Labour's first Budget on 28 October, setting out tax and spending plans while carefully refusing to rule out tax increases, having acknowledged that government borrowing costs are at "historic highs." The government's room for manoeuvre on tax is, of course, limited - a phrase that has never once preceded good news.

Before the 2024 general election, Labour promised not to increase three big revenue earners: income tax, National Insurance and VAT. In his statement to MPs in the House of Commons, Healey will set out how the government plans to raise or lower taxes. Alongside the Budget, the Treasury will publish details about the measures and their costs, while the independent Office for Budget Responsibility (OBR) will publish an assessment of the health of the UK economy and a forecast of what it thinks will happen in the future - a document traditionally read aloud in a tone of mild panic.

The run-up to the Budget typically generates speculation about what might be in it, which the government is trying to keep to a minimum this year. Healey and Prime Minister Andy Burnham face a difficult balancing act: offering more support to households, meeting commitments on defence spending, and sticking to Labour's manifesto commitments on tax and the government's self-imposed fiscal rules. In other words, doing several contradictory things at once, which is either leadership or a circus act depending on your view.

The previous chancellor, Rachel Reeves, set out two main rules that the new leadership has vowed to follow: not to borrow to fund day-to-day public spending by the end of this parliament, and to get government debt falling as a share of national income by the end of this parliament. In March, the OBR calculated that the first rule would be met with a gap - or headroom - of £23.6bn. However, this headroom is expected to have shrunk. Analysts are divided on how much it may have fallen by. While a rise in government borrowing costs will increase debt interest payments, higher inflation could push up tax revenues. KPMG believes the government's buffer could have fallen to £12bn, but the Institute for Fiscal Studies estimates it could be £20bn - a range of £8bn that we're sure will be narrowed down to something comforting any day now.

There has been speculation over what specific measures will be announced. Bank bosses have told the BBC they expect Healey to raise taxes on the sector, with UK banks reporting bumper profits and unions calling for higher taxes. The Treasury has options: it could raise a 3% surcharge on profits, which was lowered from 8% under the previous Conservative government, or it could raise the bank levy based on the size of their balance sheets. Either way, the banks are about to discover that bumper profits are a bit like a bumper sticker - everyone can see them, and some people will want to tax them.

Further details on the Your First Home scheme, aimed at helping first-time buyers in England purchase a property, are expected in the Budget. The scheme will allow people to buy a new-build home with a deposit of 2.5% and provide them with a loan worth 20% of their property's value to help pay for the purchase. There were concerns that the threshold for eligibility could be set at £90,000 for a combined income outside London and £110,000 in the capital, potentially excluding couples such as teachers and nurses, or police officers. But that threshold will now be £110,000 outside of London and £140,000 in the capital, the BBC understands - a relief for teachers, nurses and police officers, who can now afford a new-build home with a deposit that sounds suspiciously like a rounding error.

There had been speculation that Capital Gains Tax (CGT) - imposed on the profit people make when they sell an asset that has increased in value - could be changed through higher rates or by removing or amending exemptions. However, this has now been ruled out. Pensioners on low incomes are expected to be shielded from income tax through a new personal allowance. The government had already committed to not taxing people who only get an income from the state pension, but the full state pension is set to rise above the current £12,570 threshold, meaning about one million people would have needed to pay tax. A novel approach: promising not to tax pensioners, then raising their income until they qualify for tax anyway.

The Times has reported that online retail giants such as Amazon and eBay are expected to be made responsible for collecting tax owed by traders using their platforms. The paper said the money raised is expected to be used to cut business rates for High Street shops by raising the threshold at which small companies start paying rates from £12,000 to £18,000. Healey is also planning support for small breweries - because nothing says "levelling up" like a tax break and a pint.

Fuel duty was frozen under the Conservatives in March 2022, and Sir Keir Starmer's government continued the freeze, deciding in May to push back a planned 3p increase in September until the end of this year. Healey told the BBC in late September that the time and place for dealing with rising petrol and diesel costs was the Budget but would not give details on whether the freeze would be extended again. Household energy bills are set to see their biggest rise in four years in January, with a typical annual bill forecast to jump by £276. There has been speculation that Healey is planning energy bill help for households on certain benefits - a policy known in Westminster as "doing something about the thing everyone is worried about."

The High Value Council Tax Surcharge - dubbed the mansion tax - was announced in last year's Budget and will apply to properties in England valued above £2m from April 2028. There had been speculation the government was considering extending it to properties worth more than £1.5m. However, reports now suggest Healey has ruled this out, presumably after someone pointed out that £1.5m in London buys you a nice garage.

Healey has said the government plans to slash "form-filling and pointless paperwork" to save UK businesses up to £800m. Ministers have said the proposed changes in regulations will reduce unnecessary bureaucracy for businesses - a promise every government has made since the invention of the form, and which has yet to result in a single fewer form.

Healey is expected to add another £1bn to the £39bn planned spend on social and affordable housing in England over the next decade. Regional bodies and mayors in England will be given greater powers over spending, starting with £285m next year for things like housing, transport and High Streets. In future, the regions will be able to borrow to spend more on local priorities - a phrase that will surely be followed by "within limits" and "subject to approval."

Opposition parties have released their alternative budget proposals. The Conservatives are urging the chancellor to reduce spending and borrowing, as well as to cut green taxes, red tape and benefits to bring down energy bills. Reform UK are recommending that the chancellor adopt 60 policies which they claim will create jobs - including approving the controversial Rosebank oil field, a project Healey is understood to back. So the opposition's alternative budget is, in part, the government's budget.

In the first three months of the year, the UK's economy grew by 0.6%, while in the April-to-June quarter it grew by 0.5%. The most recent data showed the economy grew by 0.1% in August after growth of 0.4% in July, with both figures stronger than expected. Analysts say the UK economy is proving resilient in the face of energy price shocks caused by the US-Israel war with Iran. Energy prices jumped after the conflict led to the effective closure of the Strait of Hormuz, a key waterway for oil and gas trade. Economists expect UK growth to slow in the months ahead as those costs continue to weigh on households and businesses.

Prices for goods and services are still rising faster than wanted. Inflation hit 3.1% in the year to August, the highest rate in five months and above the Bank of England's 2% target, driven by higher petrol and diesel prices. The Bank of England held interest rates at 3.75% for the sixth time in a row in September but said they were likely to rise if high energy prices persist. So: steady as she goes, unless something happens, in which case not.

The Budget speech usually starts at about 12:30 UK time - after Prime Minister's Questions - and lasts about an hour. It will be broadcast live on the BBC iPlayer and on the BBC News website. The Leader of the Opposition, Conservative MP Kemi Badenoch, will respond to the speech in the House of Commons. MPs debate the measures for four days before voting on them. If approved by MPs, tax changes can come into effect immediately. However, the government must pass a finance bill to make them permanent - a process that has never been used to delay, water down or quietly abandon anything, ever.

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