Budget 2026: The Two Big Calls Chancellor John Healey Has to Make
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Faisal Islam: The two big calls the chancellor has to make ahead of the Budget
Image source: AFP via Getty Images
By Faisal Islam, Economics editor
Published 26 minutes ago
"It is tough," John Healey admitted to me earlier this month when I asked him if there had been too much doom-mongering?
"Conflicts, uncertainty, driving up inflation, driving up interest rates. But we've got great strengths. We've got good reasons to be confident about the future of Britain," he insisted.
The new scheme to try and help young people get on the property ladder, announced on Saturday, was aimed at boosting confidence in the economy.
But the chancellor is now facing two big decisions before his inaugural Budget on 28 October:
1. How long could Iran pressures last?
Yet there is something unusual about this energy shock. It could quickly reverse, as illustrated earlier in the summer when assumptions about a deescalation in the US Iran conflict led to sharp falls in energy prices and yields.
In New York this week both President Trump and his Iranian counterpart President Pezeshkian suggested November's US midterm elections were connected to when the war might end.
The Iranians would wait until after the elections to seek peace because the war's impact on the cost of living—particularly soaring diesel costs—could damage him electorally, the US president told the UN General Assembly.
The Iranian president said his nation "didn't want it to get to the midterms."
Both sides in this war are feeling the economic squeeze of conflict.
The 3 November vote is six days after the Budget. No one could rely on there being a settlement by then, but it is plausible. So the Budget tax, spend and borrowing forecasts could be based on a prolonged conflict, which is actually on the cusp of ending, or even already ended.
The chancellor has to therefore decide whether to plan for the worst, and make some painful permanent tax and spend decisions, or buy some time.
One option is to let borrowing take some of the strain, by tolerating a reduction in the £24bn of headroom—room for manoeuvre against its self-imposed borrowing rules—left by his predecessor, Rachel Reeves.
This year's headroom will be judged in three years rather than four, so there is some rationale as to why a smaller number over a closer target might be appropriate.
And while higher inflation means higher cash tax receipts, at a time when thresholds continue to be frozen.
2. Will he keep the vibes going?
There is a second consideration. The hopeful optimism "vibes" strategy of the Burnham administration appears to have had some impact.
The longest running UK consumer confidence survey has hit a two-year high. Among younger people it has not been this high since before Brexit.
Some data companies call it a "Burnham bounce," although the weather and World Cup were also factors.