Autumn Budget: Healey weighs slashing fiscal headroom to reduce tax hikes

Chancellor John Healey is considering a lower fiscal buffer for the upcoming Autumn Budget in order to reduce tax hikes. Treasury and No 10 officials are discussing whether to set a smaller buffer than the Office for Budget Responsibility had set in March, according to Financial Times reports. This would allow the government to soften tax increases and spending cuts on October 28th.

The government's fiscal rule requires spending to be covered by revenues by the 2029/30 financial year. The fiscal watchdog estimated that former chancellor Rachel Reeves would reach this target with a £23.6bn buffer. Gilt investors are divided on whether a headroom of less than £20bn is feasible, with some arguing it's unrealistic and others believing the government should aim for the OBR's prediction.

Healey has stated he will meet fiscal rules with a "buffer against uncertainty," but the exact target size remains unspecified. Government officials plan to argue that maintaining March's buffer is unnecessary due to rising borrowing and energy costs. Economic concerns are rising due to the Middle East conflict, with Andy Burnham admitting Labour has already raised taxes twice.

Spending cuts are also being considered, but services may face resistance from Labour backbenchers. Welfare reform plans have been delayed until 2027. The Treasury is considering higher taxes, such as a bank levy and increased capital gains tax, to fund spending, including a lower threshold for the mansion tax.