Healey's first budget targets cost of living in a 'difficult moment'

Chancellor John Healey will deliver his first budget on Wednesday with the UK paying the highest yield on new five-year bonds since 2008 — above 5% — as he tries to shield households from rising living costs.

The budget marks a difficult balancing act. Public finances are stretched, market turmoil linked to the Iran conflict has worsened them, and Healey has limited room for large giveaways. Big decisions on tax and spending are expected to be postponed until next year.

Healey acknowledged the pressure in a pre-budget video. "The world's a highly uncertain place," the chancellor said. "Conflicts abroad are pushing up energy prices, and the cost of living here at home – piling pressure on the families, on businesses and on our public finances."

In his pre-budget address, he framed the budget as a bridge: "This budget is about getting through this difficult moment. But it's also about putting Britain on a future path, a better future path."

What will the budget actually do?

The chancellor is expected to announce a package of measures:

• Temporary support for poorer families ahead of a steep rise in typical energy bills in January
• Energy market reforms intended to cut bills for all households over the longer term
• An end to the carers' allowance cliff edge, which has penalised unpaid carers for exceeding their earnings limit by as little as a few pence a week
• Cancellation of January's planned increase in fuel duty
• A near 4% rise in the minimum wage, with a slower increase for those under 21 after warnings they are being priced out of jobs
• Protection for pensioners, shielding nearly one million people from paying income tax
• A more generous revived Help to Buy scheme, benefiting middle earners

The moves form part of what Healey calls "everyday fixes". He insists the government will ease cost of living pressures "responsibly" by sticking to Labour's self-imposed fiscal rules, in an effort to reassure markets that longer-term reforms will make Britain "more resilient" to global shocks.

Who pays for it?

To offset damage to the public finances from war in the Middle East, Healey is poised to raise taxes on Britain's banks, potentially reversing cuts to the bank surcharge made by Jeremy Hunt — a step that would raise upwards of £2bn a year. Online retailers will be made responsible for collecting tax owed by firms selling on their platforms.

Andy Burnham recently told MPs he wants the gas standing charge — a fixed daily levy on all users — abolished. That would cut bills for consumers who use less energy, with the cost picked up by heavier users.

What about defence and devolution?

The government has faced pressure to set out a clear path for defence spending to reach 3% of national income by 2030 — a target Healey claimed commitment to when he resigned as defence secretary earlier this year. He is expected to confirm more investment in defence industries, described as a "downpayment" on the target, but will wait until next year's spending review for the timetable.

The budget will also include a "roadmap" for devolving more tax revenues to local leaders, shifting spending power away from Whitehall. Detail on Burnham's devolution agenda in skills and employment support will follow in a white paper in the weeks ahead.

Industry experts fear hydrogen and carbon capture investment will bear the brunt of efforts to rein in spending — a blow to the UK's net zero targets.

How bad is the economic backdrop?

Cutting energy prices would also bring down inflation, easing pressure on the Bank of England, which markets now expect to hike rates four times to 4.75% over the next 12 months. Inflation hit an in-year high of 3.5% last month, Healey told ministers at a cabinet meeting last week.

Consumer confidence has fallen at the fastest rate since Brexit. Consultancy BTG reported on Thursday that the number of businesses in financial distress has hit its highest level in more than two decades, with hospitality and construction hardest hit.

Still, Healey struck an optimistic note: "Britain's economy is showing real signs of resilience: investment's up, productivity is growing and we had the joint fastest growth in the G7 in the first half of this year."

How did opponents react?

The Tories accused the chancellor of preparing to "shy away" from difficult decisions, including bringing down the welfare bill, which the prime minister has said he does not want to do through "crude cuts".

Shadow chief secretary to the Treasury Richard Fuller said: "Britain's public finances are on a cliff edge. A 'do-nothing' budget will not solve the problems staring us in the face: a spiralling welfare bill, a crippling tax burden, mounting debt and rising global threats."

Lib Dem deputy leader Daisy Cooper warned against a "steady as she goes" budget. "Families are being squeezed from all sides, businesses face mounting costs and for many it feels like even the basic joys in life have become unaffordable," she said.

With the fuel duty rise cancelled, bank taxes raised and the biggest fiscal choices deferred to next year, Wednesday's statement will test whether modest relief can satisfy both households and the bond market at the same time.