John Healey warns of tough first budget as Middle East war puts pressure on economy

Chancellor John Healey warns that the UK will face a difficult budget next month due to the ongoing war in the Middle East, which is causing global instability and inflation. In an interview with the Financial Times, Healey emphasized the need for a robust "buffer against uncertainty" as he prepares to present his first budget on October 28th.

The conflict in Iran is expected to have a significant influence on his fiscal decisions. Healey stated that the country must tackle the challenges posed by the uncertain and dangerous world, but he is committed to adhering to Labour's 2024 manifesto pledges, such as not raising taxes on "working people" and the corporation tax rate.

The public finances are under pressure from soaring global bond yields, which reached an 18-year high earlier this week. These yields have a substantial impact on government spending plans, driving up borrowing costs. Healey also acknowledged the welfare bill and the need to cut costs, improve employment, and potentially reform the triple lock on state pensions.

The Institute for Fiscal Studies suggested that the government may consider an Australian-style system, increasing the state pension in line with workers' earnings with a temporary lock to protect against wage declines during economic downturns. Reform UK, a political party, has proposed a £80bn cut to public spending over five years, targeting welfare payments, net zero investment, and overseas aid.