UK Budget: Healey Balances Debt Load and Energy Costs
The chancellor will speak Wednesday as inflation reaches 3.5% and government borrowing costs climb.
By Vikram Harrison ·
Britain's Treasury chief enters the House of Commons today with a debt burden that has crossed 3 trillion pounds, or about $4 trillion, for the first time.
John Healey took office as chancellor of the exchequer in July, when Andy Burnham became prime minister. He left 11 Downing Street with the ceremonial red budget briefcase shortly before 11 a.m., more than an hour ahead of his speech.
The Iran war has pushed up global oil and gas prices and disrupted shipping through the Strait of Hormuz. U.K. inflation has climbed to 3.5%, a level not seen in nearly a year, and is forecast to rise further. The Bank of England is expected to raise interest rates, which would increase what the government pays to service its debt.
Healey has said he wants to give businesses and families "some breathing space" on living costs. Before the budget he abolished a charge applied to domestic natural gas bills. "My budget will draw a line in the sand on an energy policy that has failed British bill payers for years, letting extra costs on bills pile high and leaving households even more exposed to global shocks," he said. Further help for households and businesses on energy bills is anticipated.
Serving the debt now takes 8% of government spending. Healey has to find money from somewhere to cover commitments Burnham has made on reducing homelessness, improving care for older people and meeting NATO defense spending targets. Potential sources include a higher surcharge on bank profits and increased taxes on the gambling sector.
Matthew Amis, an investment director at Aberdeen Investments, said a "dull budget" could be rewarded by financial markets with lower government borrowing costs, which over time could free up money for schools, hospitals and the military. "The one note of caution is that international investors are very quick to punish countries with a weak fiscal story. Just ask France," he said.
Attention will also fall on defense. Healey resigned as defense secretary earlier this year over the level of funding provided, a step that increased pressure on Keir Starmer, the prime minister Burnham replaced.
Healey must either raise taxes or cut spending to satisfy investors in bond markets. The International Monetary Fund recently approved the direction of the country's public finances.
