UK set for difficult budget next month amid Middle East conflict, warns treasury chief

Treasury chief John Healey has warned that the UK will face a challenging budget next month due to the effects of the Middle East conflict. In an interview with the Financial Times, Healey stated that the Iran conflict is expected to significantly impact his first budget, which is set to be presented on October 28. Healey, who succeeded Rachel Reeves as Treasury chief, expressed his desire to maintain a robust reserve to navigate uncertainty amidst increasing global instability.

However, economists predict that Healey may need to either raise taxes or implement substantial austerity measures to preserve the £24 billion spending margin that was available to his predecessor. Healey emphasized that the Middle East situation is contributing to inflation, growth challenges, and higher borrowing costs. The newspaper reported that Healey intends to uphold Labour's 2024 election manifesto pledge of not raising taxes on working individuals, such as income tax, national insurance contributions, and VAT.

Additionally, a rise in the corporate tax rate is not expected. However, public finances are facing pressure from soaring global bond yields, which recently hit an 18-year high. Healey has faced criticism for failing to commit to raising the defense spending to 3% of GDP by 2030, a decision seen as a major setback for the Keir Starmer government.

Healey acknowledged the difficult economic conditions, stating that people are struggling with the cost of living and that the government is concerned about rising expenses for both families and businesses. He also reiterated his commitment to reducing welfare spending and increasing employment rates, acknowledging that some of his decisions may only become apparent in the years to come.