John Healey has achieved something British chancellors have lately come to regard as a considerable success: he delivered a budget without frightening the bond market.
Government borrowing costs barely moved. Sterling remained steady. Investors found little in the chancellor's announcements to disturb their expectations. After years in which British fiscal policy has too often been judged by the speed of the market's adverse reaction, that is no small achievement.
But there is a danger in confusing the absence of financial turmoil with the presence of an economic strategy.
The distinction matters because Britain's difficulties are no longer confined to the credibility of its public finances. They extend to the economy's ability to generate the growth on which those finances ultimately depend.
The October budget addresses the first problem with considerable caution. It offers a less convincing answer to the second.
The numbers explain why. The Office for Budget Responsibility now expects the British economy to grow by just 1 per cent in 2027, while inflation is forecast to rise to 3.4 per cent. Public debt is projected to peak at 83.8 per cent of GDP, and the chancellor's fiscal headroom has narrowed to £15bn in 2029-30, down from £23.6bn in March.
These are hardly the foundations of an economic revival. They describe a country whose government remains financially constrained, whose households face another erosion of purchasing power and whose capacity to absorb further shocks has diminished.
Mr Healey has chosen not to confront all these problems at once. Politically, the calculation is understandable. Economically, it carries a price.
Relief is necessary. It is not recovery
The centrepiece of the budget is an effort to soften the latest energy shock. Households in council tax bands A to D in England will receive a £100 payment, while the cut in VAT on energy bills has been extended. The government has also maintained relief on fuel duty and announced measures intended to reduce energy costs over time.
These interventions serve a legitimate purpose. When energy prices rise sharply, households cannot simply postpone heating their homes until the economic outlook improves. Nor can businesses absorb indefinitely higher operating costs without consequences for employment, investment or consumer prices. The state has a role in cushioning such shocks.
Yet the design of that support raises a more uncomfortable question: how much of the money will reach those who genuinely need it?
Eligibility based on council tax bands is a convenient administrative mechanism, but property valuations are an imperfect measure of household income. Some families under severe financial pressure will receive limited assistance, while others with considerably greater resources will also qualify. The Resolution Foundation has called the payment "a terribly, badly targeted kind of support".
More fundamentally, government transfers cannot reverse the economic damage done when the country pays substantially more for imported energy. They can redistribute the burden. They cannot make it disappear. That distinction has been largely absent from the political celebration of the budget's cost-of-living measures.
Relying on tomorrow to repair today
The government intends to reduce borrowing over the coming years and meet its fiscal rules. According to the OBR, borrowing is expected to decline from 4.2 per cent of GDP this year to 1.8 per cent by 2030-31. On paper, that represents progress.
But the route deserves closer inspection. The OBR estimates that around 60 per cent of the projected decline in borrowing as a share of GDP will come from higher receipts, rather than lower spending.
There is nothing inherently objectionable about raising enough revenue to finance public services. Britain's ageing population, infrastructure needs and defence commitments cannot be funded through optimism. The problem arises when an expanding tax burden is expected to compensate for an economy that struggles to expand itself.
Tax receipts may strengthen the Treasury's position. They do not automatically improve productivity, encourage private investment or raise living standards. Indeed, the more slowly an economy grows, the more politically difficult fiscal consolidation becomes. The government must then choose between higher taxation, tighter spending or greater borrowing. None is painless.
Mr Healey has deferred some of those choices, particularly the difficult questions surrounding departmental spending. He may have good political reasons for doing so. But postponement does not reduce the eventual cost of a decision.
The Bank of England faces a different calculation
There is another complication which the chancellor cannot control: monetary policy.
The Bank of England held its benchmark interest rate at 3.75 per cent in September. Its next decision, on 5 November, comes as renewed energy pressures threaten to keep inflation above target.
The Treasury wants households to have more spending power. The Bank must prevent temporary price shocks from becoming persistent inflation. Those objectives are not necessarily incompatible, but they are increasingly difficult to reconcile.
If inflation remains elevated, the Bank may be compelled to keep borrowing costs higher than households, businesses or the Treasury would prefer. Higher interest rates would put more pressure on mortgage holders, discourage some investment and increase the government's debt-servicing costs.
This creates a particularly uncomfortable fiscal vulnerability. Britain's public finances have become increasingly sensitive to movements in interest rates. The OBR estimates that a one-percentage-point change in rates could alter debt interest costs by about £16bn. That is a substantial exposure for a government operating with limited headroom.
A chancellor can present a credible borrowing forecast. He cannot guarantee the interest-rate environment on which that forecast depends.
Britain still needs an answer to its growth problem
There are measures in the budget that deserve serious consideration. Greater regional control over economic resources, additional support for housing and investment through public financial institutions could improve economic performance if implemented effectively.
Britain has long suffered from excessive centralisation, persistent regional disparities and an inability to translate public investment into sufficiently broad productivity gains. Reforming those weaknesses is worthwhile.
But announcing investment and producing growth are different achievements. Infrastructure must be delivered. Planning obstacles must be removed. Businesses must have enough confidence to commit capital. And the tax system must reward productive activity rather than merely accommodate the Treasury's immediate revenue requirements. These are institutional challenges, not problems that can be resolved through a collection of modest budget announcements.
The temporary increase in the surcharge on bank profits illustrates the government's immediate dilemma. Raising revenue from bank profits to finance household energy support is politically attractive and offers a clear funding mechanism. Whether the additional tax has wider consequences for lending and investment is a question that deserves more attention than the political argument about who can most easily afford to pay it. Britain needs a financial system capable of supporting productive enterprise, and that objective should remain central to decisions about how the sector is taxed.
Stability should be the beginning, not the ambition
Mr Healey deserves credit for resisting the temptation to make promises the public finances cannot sustain. The calm reaction in financial markets suggests that investors recognise the distinction between fiscal restraint and reckless ambition.
Nevertheless, market confidence is an insufficient measure of national economic success. Bond investors primarily want reassurance that the government can meet its obligations. Households want rising living standards. Businesses want investment opportunities, predictable costs and an economy capable of sustained expansion. Those demands overlap, but they are not identical.
A budget can satisfy the bond market while leaving the country's deeper economic weaknesses largely untouched. That is the uncomfortable conclusion from October's announcements.
The chancellor has reduced the immediate political pressure, offered some relief against higher energy costs and preserved the appearance of fiscal discipline. He has not yet shown how Britain will escape the combination of weak productivity, elevated borrowing costs and disappointing growth in household incomes.
Perhaps some of that work will come in the spending decisions and structural reforms promised for next year. But economic credibility cannot rest indefinitely on the expectation that the difficult decisions are still to come.
Britain has spent too much of the past decade treating stability as the destination rather than the condition necessary to reach somewhere better.
The bond market did not panic at John Healey's budget. The chancellor should be relieved. He should not be satisfied.
