John Healey’s first budget was a Rorschach test. Supporters saw dozens of measures offering “breathing space” to a public worn down by rising prices. Critics admitted to a slew of announcements but countered that each was modest in value. Underlying both views is that the budget was more ambitious on how a state can do more to protect the public than on how much it spends. The chancellor has taken a small step in the right direction – a tricky feat in a turbulent world. But an economy marked by entrenched inequality and more than a decade of stagnation will need a bigger stride.
The Office for Budget Responsibility’s “pretty grim picture” of living standards exposes the budget’s central weakness: its relief is temporary, while the squeeze on households persists. As the government deficit shrinks and company profits recover, households are expected to move from saving roughly £50bn in 2026 to borrowing roughly the same amount in 2031. By then, mortgage repayments are expected to reach 4.25% of household disposable income – the highest level since 2009. The OBR expects growth to recover from 1% in 2027 to 1.8% in 2029, while weak worker “bargaining power” allows firms to rebuild profit margins. That sits uneasily with Mr Healey’s promises to working people.
Admittedly, the budget’s ambitions – shaping energy markets, ending rough sleeping, devolving tax and spend decisions – go beyond its winter relief package. Mr Healey is also right to ask banks, gambling companies and landlords to contribute more. Preventing hardship is better than repeatedly paying for its consequences. In ringfencing homelessness prevention in local government spending, even though the savings are experienced in the NHS, he is making both moral and financial sense.
The problem, however, is not that Mr Healey’s budget lacks ambition, but that it lacks firepower. The bank tax raises just £1.5bn over 15 months, against the projected £11bn that a Thatcher-style levy on interest-free deposits could have yielded. The Resolution Foundation has a point when it says that 80% of homes get a £100 energy payment, while 1.4 million poor families miss out. Relying on revenues from the giant Rosebank oilfield before its approval is settled would be reckless. So would treating the export of its oil as an answer to the climate damage caused by burning it.
The choices that Mr Healey makes all too often reflect the fiscal constraints he opted to retain. Is it really “credible” to claim that there will be £11bn of cuts to “unprotected” budgets (those that aren’t defence, the NHS, schools or international aid) in 2031-32? Many experts think not. Should the defence budget be funded by “reprioritising” other departments’ capital spend? Mr Healey thinks so. The prime minister called the 2009 Marmot review his bible on reducing inequalities – it advocates for widescale economic rebalancing. But devolving tax revenues without adequate redistribution risks giving the wealthiest places the most to spend, rather than giving the poorest the help they need. Mr Healey has yet to explain how he will prevent that.
Global events could make Mr Healey’s life much tougher. Prolonged disruption in the strait of Hormuz would further squeeze real incomes. But the chancellor has in his budget sketched the outline of a social-democratic active state: taxing rentiers, protecting vulnerable people and investing in prevention. The question is whether those commitments have enough resources to succeed.