Healey to deliver first Budget with welfare reform and cost-of-living fixes

Chancellor John Healey will deliver his first Budget on Wednesday, with welfare reform, cost-of-living help and a tight squeeze on the public finances at the centre of the statement. The government is billing the package as 'breathing space' for families and businesses, but it is also preparing for a difficult economic backdrop shaped by war in the Middle East, higher energy prices and pressure from bond markets.

Welfare reform

Liz Kendall, the former work and pensions secretary, told the Electoral Dysfunction podcast that there is a moral duty to get people back to work and slow the growth of the benefits bill. She said good work is good for people, their dignity, self-worth, independence and mental health, and that businesses should be able to draw on all the country's talent. She also said the welfare review will need to find savings because the growth in costs is too much. The government has not published the Milburn review of welfare, and critics say reform has been delayed.

Budget measures

• Fuel duty is expected to be frozen. It had been due to rise by 5p a litre in January.
• Import tariffs will be cut on a range of everyday goods, including heating oil, baked beans and gherkins. The government says the package will save about half a billion pounds across the economy. Critics say the tariff cuts are small, and officials say they will save someone around 40p a week.
• The Carer's Allowance cliff edge will be ended with a taper. The higher tax-free mileage rate of 55p per mile will become permanent.
• Help on energy bills is expected, including plans to remove standing charges from gas bills.
• The state pension will rise above the income tax threshold, but the government says a measure will mean the state pension is not subject to income tax.
• Banks are braced for a new levy or surcharge on profits. Online retailers such as Amazon could also be taxed, with the money used to cut business rates for high street shops.
• Minimum pay for 18 to 20 year olds is expected to rise more slowly than previously planned, just under 4%, to help employers with costs.
• There will be more money for defence, but not enough to meet the government's 3% target by 2030, so further spending decisions are likely to be pushed into a later spending round.
• The Budget will also fund devolution and regional growth, including a £285 million fund for communities in England, £1.5 billion of borrowing capacity and £150 million for strategic local authorities. Other announcements include £800 million of red tape savings for business, more than £400 million for homelessness, £600 million for defences against AI threats, £7 million to explore an Olympics bid in the north of England and more than £1 billion for social and affordable housing.

Andy Burnham, in his 100th day as Prime Minister, is expected to set out a wider 10-year plan in December. Allies say this Budget will not make all the big policy choices in advance. The Chancellor is also reported to favour opening the Rosebank oil field, a decision that may not be universally supported in Cabinet.

Economic backdrop

The economic backdrop is difficult. Inflation is back at 3.5%, debt interest is forecast at £109 billion this year, more than the entire education budget for England, and the cost of government borrowing has risen. The war in the Middle East has pushed up gas prices, and EDF has warned that typical energy bills could rise by £400 in January. The government has ruled out a repeat of the £2,500 energy price guarantee. The IMF has praised the UK's deficit reduction plan and growth has been more resilient than expected, but public finances remain tight. Questions remain over public sector pay, unprotected public services and defence. The Chancellor has little room for manoeuvre and is keen to avoid frightening the bond markets. The Budget is therefore expected to be smaller in tax and spending terms than the last two, with targeted help rather than big giveaways. Opposition parties are already calling it tinkering, while ministers insist they are not powerless and will do more in the months ahead.