Chancellor Healey's First Budget Buys Time at £4bn Cost

Chancellor John Healey's first budget leaves him a £15bn cushion against his core fiscal rule — down from the £24bn Rachel Reeves held at the spring statement — while deferring the hardest spending decisions to a review next year. The Office for Budget Responsibility (OBR) now expects Healey to balance day-to-day spending with revenues, but by a slimmer margin than his predecessor enjoyed. Healey told MPs he plans to rebuild that headroom to £22bn by 2030-31. "That is what a buffer is for. Use it when you need it, rebuild it when you can," he said. A buffer spent, in plain words, is a promise to repay later — and the OBR's numbers show why the promise is under strain.

Did the budget calm the financial markets?

Barely a flutter moved the bond markets, according to The Guardian's economics editor Heather Stewart and political editor Pippa Crerar, who dissected the budget in a briefing. Markets took the slower pace of deficit reduction in stride. But the OBR's forecasts showed higher borrowing costs have added £14bn in interest payments alone. Borrowing will run £8bn above expectations this year before returning to target over time. Reassurance, for now, has a price tag attached.

What did households actually get?

A roughly £4bn energy package formed the only surprise in the budget. It included:

• £100 payments to every household in council tax bands A to D;
• cancellation of Reeves's planned fuel duty rises;
• extension of the VAT cut on electricity bills until next summer.

The relief is partial. EDF predicts the energy price cap could jump as much as 27% in January. The OBR now expects inflation of 3.5% next year, against the 2% it forecast in March, pushed up by energy prices stemming from Donald Trump's war in Iran. The Bank of England is expected to raise interest rates, possibly as soon as its meeting next week, hitting mortgage borrowers. On the OBR's preferred measure, real household disposable income falls slightly this year and reaches just 2% above pre-Covid levels by 2030. The "breathing space" Healey offered, in plain words, is a pause before bills bite harder this winter.

Are Labour MPs satisfied?

Not entirely. MPs asked "Is that it?" when Healey sat down, despite briefings that the budget would be low key. One MP told The Guardian: "That won't end 40 years of neoliberalism, will it?" The bank tax increase plays well with voters, but some backbenchers question why Healey did not go further. Polls put Labour eight points ahead, and Prime Minister Andy Burnham's approval ratings remain high — though Burnham ruled out an election within 12 months. A second hearing is not the same as a mandate for radical change.

What does the budget reveal about Healey and Burnham?

The two men share regular Sunday night curries in the No 11 flat, and both sit on the soft left. Yet Healey was not Burnham's first choice for chancellor; he was seen as capable, trustworthy, and likelier to sign up to the Burnham project than rival candidates. The budget's modest scale suggests Burnham has accepted fiscal constraints on his ambitions — for now. Healey laid groundwork on devolution and housing but still must prove himself on defence. He quit Keir Starmer's government over the failure to commit to 3% of GDP on defence by 2030; he now signals he will hit the target but cannot say how until next autumn's spending review. His reputation rests on that unanswered question.

What was postponed?

Nearly everything hard. The Institute for Fiscal Studies (IFS) calculated that, alongside the £11bn needed for the 3% defence target by 2030, additional pressures on departments amount to £35bn a year. Healey offered digitisation, a slimmed-down civil service, and hoped-for growth as answers. "I believe Britain can beat the forecasts again," he said. Hope is not a spending plan. No 10's own research shows voters still blame the global context — Trump's war, energy prices — rather than the government, but insiders fear that tolerance cracks this winter. The OBR flags the Middle East conflict, and whatever the US president does next after the midterms, as the main risk. Next year's spending review, not this budget, will decide whether the buffer strategy worked.