Stick to spending limits, PM and chancellor tell ministers in joint memo

Chancellor John Healey and Prime Minister Andy Burnham have instructed cabinet ministers in a joint memo to adhere to their existing spending limits while funding new pledges. Burnham recently announced a series of cost-of-living policies, such as removing VAT on domestic electricity bills and capping bus fares in England. Both Healey and Burnham are committed to adhering to the fiscal rules established by their predecessors, Sir Keir Starmer and Rachel Reeves.

The chancellor's inaugural Budget is scheduled for October 28th, which will be focused on fiscal discipline. Healey emphasized that the budget will meet fiscal rules and provide stability for businesses and families to plan for the future. The government aims to balance day-to-day spending with tax revenues by the end of the decade, as outlined by the fiscal rules inherited from Reeves.

However, the ongoing war in Iran is driving up inflation and borrowing costs, putting pressure on the government to make tough spending decisions. Burnham has pledged to honor Labour's fiscal rules on spending and borrowing, as well as the party's 2024 manifesto commitments not to increase income tax, VAT, or National Insurance contributions.

The think tank warns that Healey may need to cut spending or raise taxes to meet Burnham's policy priorities, including increased defense spending and improved social care.