New chancellor John Healey has laid out the principles of his economic policy, saying he will stick to the existing fiscal rules and seek to control public spending while trying to boost growth in Britain.
Healey emphasised his commitment to fiscal discipline and stimulating growth in his first major speech in his new position, delivered at a manufacturing plant in Coventry on 7 September.
The cost of borrowing was a major focus. Gilt yields reached record highs last week with the yield on 10-year UK government bonds (gilts) rising above 5.29% on 2 September, the highest level for 19 years.
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"Staying true to our values means being honest about the need to control government spending,” Healey said.
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He noted that government debt as a share of GDP has soared from 64% in 2009 to almost 100% today and placed the blame at the foot of successive Conservative governments.
He said borrowing costs were around the G7 average until the Truss budget “crashed the economy [...] Since 2022 we have been paying that Truss penalty as we battle to re-establish belief in Britain.”
“There's nothing progressive about the government spending £1 in £10 on debt interest,” he added.
Healey also sought to reassure markets that he will not let borrowing get out of control or ignore Britain’s self-imposed fiscal rules, saying: “On my first day in the Treasury I said fiscal discipline was my first priority as chancellor.
“It underwrites every promise this government makes and the Prime Minister and I are in lockstep in our commitment to meeting the fiscal rules at the upcoming budget: to balancing the books, with a buffer to protect against uncertainty, to controlling borrowing to bear down on inflation and reducing long term pressures on our public finances.
“This isn’t about lines on a graph, or numbers on a spreadsheet. It’s a matter of values.”
What will happen in the Budget?
As Healey’s speech was mostly in broad strokes, he did not provide specifics on what new policies may be announced in the Budget and refused to answer any questions about it.
Responding to questions from journalists on the subject, Healey said: “If I respond to speculation now that will only fuel more speculation. Every chancellor would say ‘that’s for the Budget’, and I will set out my plans and the future route for the government for this country at that Budget.”
Although we will have to wait for a full economic plan, Healey did make some broad announcements.
On devolution he said: “At the Budget, I will set out a roadmap to fiscal devolution, a permanent transfer of power and resources from Whitehall to our regions, with greater business rates retention for local councils and strategic authorities, grants from central government replaced by a share of local income tax for every mayoral strategic authority beginning in 2028.”
He also made a new commitment to reduce the regulatory burden on businesses by 25% before the end of this parliament in 2029 by taking “an axe to the thicket of consultation, litigation and administration that has a stranglehold too often on private investment.”
The chancellor also said he will make changes to the Treasury Green Book, the guidance on how to evaluate public spending, to skew investment into projects with “more long-term potential.”
Meanwhile, the way the government decides where to invest will start to include “economic potential analysis” in business case decisions to judge regions not on their current state, but on what they could become in the future.
Will taxes rise in the Autumn Budget?
Although Healey did not directly address whether or not taxes will be hiked in his first budget, he stood by the 2024 Labour manifesto which he said made “very strong, very clear, very specific" commitments on tax.
That manifesto pledged that none of the ‘big three’ taxes – income tax, national insurance, and VAT – would be raised on ‘working people’, ruling out the possibility that these taxes will rise.
However, these commitments still leave the door open for alternative tax hikes. For example, Rachel Reeves emphasised this same commitment in her first two budgets but still raised taxes in alternative ways.
