John Healey will deliver his first budget on Wednesday, 28 October, with less room to manoeuvre than expected. Higher borrowing costs, driven partly by the US-Iran war, are expected to erode the £23.6bn of headroom against his fiscal rules when the Office for Budget Responsibility publishes new forecasts the same day.
UK inflation rose to 3.5 per cent in September, its highest in nearly a year, partly because of record diesel prices. Government debt stands at about 94 per cent of GDP, and the Bank of England is widely expected to raise interest rates next month.
Banks in the frame
Labour has ruled out raising income tax and capital gains tax. The Guardian has reported that the chancellor is considering reversing Jeremy Hunt's cut to the bank surcharge, taking it from 3 per cent back to 8 per cent. Bank shares fell on the report, and UK Finance warned that a rise would "weaken the UK's competitiveness". Other measures under discussion include extending the fuel duty freeze and more targeted help for poorer households. The Financial Times has reported that Healey will announce £20.4bn for the National Wealth Fund and the British Business Bank.
The prime minister, Andy Burnham, said the budget was "about breathing space for people, for businesses too". James Wood, a professor of political economy at the University of Cambridge, said: "Priority has to be credibility first, which means a budget that clearly meets the fiscal rules."
