Chancellor John Healey's First Budget: Billions in Taxes, Little Relief

By Daniel Okafor

Chancellor John Healey is expected to raise a few billion pounds in taxes, including on banks, and hand much of it back to households in a deliberately low-key budget on 28 October. The UK's £24bn fiscal headroom has likely been halved by higher debt interest costs, according to figures circulating ahead of the statement.

The mechanism is straightforward. Donald Trump's Middle East adventure, in the source's words, has pushed up inflation, and with it the interest rate the UK government pays to service its £3tn debt pile. Those higher interest costs have probably more than offset the extra tax revenue from better-than-expected growth that Rachel Reeves, Healey's predecessor, had counted on.

What does the budget actually contain?

Healey has promised Britain's battered consumers "breathing space". Sources close to the chancellor say the people he most wants to protect are small-business owners and self-employed sole traders — the kind of workers found in the small towns of his South Yorkshire constituency, not big industry or the public sector.

That focus reads as a veiled acknowledgment that small businesses bore too much of the brunt of Labour's early tax rises and regulation in this parliament.

"He has spent a lot of the time thinking about the cost of business and cost of doing business – something that's driven him quite heavily," one source says.

The expected energy support package is relatively modest: about £1.5bn, "targeted and temporary", as the IMF has urged.

Why is the headroom shrinking?

A government minister says the central question Healey must answer is how much tax and spending policy should shift in response to the damage wreaked on the public finances by the Iran war. The chancellor's answer appears to be: as little as possible. He hopes the geopolitical situation — and with it the public finances — improves before a spending review next year.

Key decisions will be postponed until that review, including the date for spending 3% of GDP on defence — the issue that prompted Healey's resignation as defence secretary in June and hastened Keir Starmer's departure.

Who is shaping the budget?

Every Sunday night, Healey slips next door to Prime Minister Andy Burnham's Downing Street flat, where they order a curry and talk politics on the sofa. Aides see the ritual as a way to separate the chancellor from cautious Treasury officials.

"Keir wanted to be presented with three ideas and then pick one," one aide says. "But, actually, in politics, sometimes you need to bash things around and come up with ideas. And that Sunday night is a bit of that – wrestling with some of Britain's problems."

Burnham is unusually involved in the budget process, advisers say — not just decisions, but the process and politics.

Reeves looms over the statement too. Labour strategists express growing gratitude toward a figure once seen as a symbol of the party's missteps.

"She made the mistakes, yes, but she left us a Labour Treasury," one adviser says. "And she had to take those massive decisions early on and do a big tax and spend budget because public services were on their knees and it was a crisis we had to start to fix. But from that point, now we can start to think about other priorities."

At the IMF's annual meetings in Bangkok last week, the UK was praised as the only G7 country with a plan to tackle its budget deficit — and urged to "stay the course". The IMF also revised up its 2026 UK growth forecast, citing better-than-expected performance despite the Iran war. Healey skipped the set-piece economic speeches, leaving them to Foreign Secretary Ed Miliband, who used the gathering to set out Britain's plans for its G20 presidency next year.

Does Healey have the team for it?

Healey inherited some of Reeves's advisers, including tax expert Spencer Thompson, and hired Ravinder Athwal, author of Labour's 2024 manifesto. His chief of staff, Will Straw, a senior figure in the 2016 Remain campaign, is viewed as a canny political operator.

Like Reeves, however, Healey lacks a figure combining economic expertise with political weight — an Ed Balls to Gordon Brown or a Rupert Harrison to George Osborne. Burnham's No 10 is advertising for political advisers with economic backgrounds, including a macroeconomics and growth specialist.

Healey has pushed officials to find innovative ways to hand more tax revenue to regional mayoralties, an idea Reeves announced first and Burnham's devolution agenda has accelerated. "It's the biggest challenge that they've had for a really long time. And you can see the groupthink sometimes – but you can also see the spark in these really clever people," one adviser says.

Will voters feel the relief?

The timing is hostile. The Bank of England is widely expected to raise interest rates the week after the budget, hitting mortgage borrowers. Inflation is expected to top 4% in the new year, and the energy price cap could rise by another 16% in January.

"He needs to do something big and bold enough for the public to think, this is why we've got a new prime minister and chancellor," says Michael Jacobs, emeritus professor of political economy at the University of Sheffield and a former adviser to Brown. "I think the public will be bewildered by a steady as she goes budget."

Sanjay Raja, chief UK economist at Deutsche Bank, notes that France's street riots have been partly driven by soaring living costs, and says temporary measures over the next two or three quarters "could go a long way".

GfK's consumer confidence data, published on Friday, shows a sharp slide into pessimism amid what the consultancy calls "relentless cost-of-living pressures". The budget on 28 October — and its reception — will set the course for what comes next. One aide is blunt: "After this we will be in election mode." Few believe Burnham will go beyond May 2028.