‘Steady as she goes’ UK budget fuels talk that bigger changes are in the wings

“Is that it?” an indignant Tory leader Kemi Badenoch asked after the inaugural budget speech on Wednesday of Labour’s new chancellor of the exchequer, John Healey.

His boss, UK prime minister Andy Burnham, rose to power over the summer with a near-revolutionary promise to reverse 40 years of right-wing economic orthodoxy. Yet his chancellor’s first big fiscal set-piece was a studied exercise in treading water, more notable for what it didn’t do than what it did.

It included modest £100 cash rebates to council tax payers and VAT cuts on electricity, but there was no mention of how to cap galloping welfare spending, which is predicted to rise by more than £100 billion annually within the next five years.

In his low-key house of commons speech, Healey blamed the inflationary pressures of US president Donald Trump’s war in Iran for limiting his fiscal options. Nancy Pelosi, the former Democratic congressional leader, watched on, smiling, from the public gallery.

Yet as Healey assiduously avoided big decisions around welfare and also, possibly, future tax rises to plug budget gaps, bookmakers shortened their odds on an early British election despite Burnham’s repeated denials that one was on the cards.

“I don’t know how many times I’ve done this now, but yes, I can rule out calling a general election in the next 12 months,” Burnham told GB News on Wednesday. Not everyone was convinced: election chatter still cranked up in Westminster’s energetic rumour mill.

There were a few significant decisions buried in Healey’s budget. For the first time, he committed the UK to reaching 3 per cent defence spending (as measured against national income) by 2030. He said a £10 billion black hole in the UK defence investment plan would be filled by extra 1 per cent per year spending cuts by other departments.

Britain is a nation increasingly convinced it must prepare for a future war with Russia, for which its rickety armed forces are unprepared. The debate is usually pitched in Westminster as an imperative to cut welfare spending to fund new military equipment.

Healey kicked this can further down the road until his next spending review, which is unlikely to be before next autumn. He said the UK government wanted time to first consider reports it had commissioned on youth unemployment and disability payments, which are due next month.

In her two budget since Labour’s election win in 2024, Healey’s predecessor Rachel Reeves backloaded departmental spending cuts, with the worst of the pain not due to land until nearer the end of the current UK parliament in 2028 and 2029.

Healey left Reeves’ plan untouched in his budget speech on Wednesday, which further fed the early election rumours among Westminster observers unconvinced he would really be prepared to implement austerity in the run-up to a scheduled election.

Meanwhile, he persevered with a swathe of baffling, small measures, such as reduced tariffs on certain canned vegetable goods.

“The prime minister came to power promising to end 40 years of neoliberalism and instead we got 4p off gherkins,” said Badenoch.