LONDON — British Treasury chief John Healey used his first budget statement Wednesday to offer households and businesses support with their energy bills this winter in the face of what he termed “global economic storms.”
Healey, who was appointed chancellor of the exchequer in July when Andy Burnham became prime minister, said the Iran war was not something the British government wanted but that it had no alternative but to deal with the economic repercussions.
As a result, he said his “choice in the budget today is to give families and businesses some breathing space now,” as the consequences of the conflict in the Gulf played out.
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“For families, that means higher prices at the pump, higher energy bills and higher mortgages,” he said in his statement, arguably the key set piece of the parliamentary calendar. “For businesses, higher running costs and more expensive loans. And the impact is felt in the public finances too. Driven by the conflict in the Middle East, government borrowing costs across the G7 are reaching highs not seen for decades.”
Energy price support package takes center stage
Among the support measures announced in the early stages of Healey’s speech was a 100-pound ($133) one-off payment this winter that will help 20 million lower- and middle-income households, proportionately more of whom live in the electoral battlegrounds in northern England.
Other measures announced include the extension of a cut in the sales tax on electricity bills and the abolition of a charge paid on gas bills.
Energy bills are set to spike sharply for households and businesses in the coming winter months as they track developments in the oil and gas markets. The Iran war and the ensuing bottlenecks in the Strait of Hormuz have squeezed global oil and gas supplies, pushing prices higher.
Healey said the banks, which have benefited from higher interest rates, will foot the bill for the support package. He increased the surcharge on their profits from 3% to 6% but only for 15 months beginning in January.
“Amid global economic storms, I am looking to our banks to help fund breathing space for British families,” he said.
Other measures in the budget
Outside of the energy price support, Healey’s overall budget was relatively low-key, especially at a time when bond markets are fretting over debt levels around the world. France has been in the spotlight recently following a wave of protests that have exposed the parlous state of its finances.
Still, he offered tax cuts for retail hospitality and leisure businesses, such as pubs and clubs, which will be paid for by the gambling sector through increasing the tax they have to pay for their machine games.
He also committed more money to reduce homelessness and said the government has a “target date” of spending 3% of the country’s annual GDP on defense by 2030 - the commitment that NATO members have already made.
For Healey, this is a touchstone issue as he quit as defense secretary earlier this year in protest at the lack of money being provided, a move that heaped pressure on Burnham’s predecessor, Keir Starmer.
Getting to 3% from the current 2.7% will cost billions more, and Healey said he will outline how that will be done when the government unveils its three-year spending plans next year.
He also announced 10 billion pounds more of economic and military support for Ukraine.
“Today we send a clear message to Moscow: Britain will stand with Ukraine for as long as it takes,” he said.
Economic challenges from Iran war to drag into 2027
Healey said the British economy has been more resilient than anticipated this year and, according to the latest forecast from the independent Office for Budget Responsibility, will grow by 1.2% in 2026.
However, growth next year is expected to be much weaker than anticipated at 1% instead of 1.6% as a result of the Iran war economic shock.
“Yes, there are real challenges ahead, but Britain has beaten the forecasts this year,” he said. “And with the action I’m taking today, I believe Britain can beat them again.”
Prior to the global financial crisis of 2008, the British economy’s trend growth rate was around 2.5% and governments since have struggled to get back to those sorts of levels - Britain’s departure from the European Union, the COVID-19 pandemic and Russia’s invasion of Ukraine have all contributed to this period of sub-par growth.
The main impact of the Iran war has been on inflation, which was due to fall earlier this year to the Bank of England’s 2% target. It has risen and is set to rise further over the coming year or two.
Inflation in Britain has risen to a near one-year high of 3.5% and is expected to rise further in the coming months. As a result, the Bank of England is expected to raise interest rates soon, which will further raise the costs to the government of servicing its debt.
Debt remains a real obstacle
Arguably, the main economic problem facing Healey is the same as that which confronted his predecessor Rachel Reeves, who was chancellor after Labour returned to power in a landslide election victory - the country’s debt mountain.
Even though the trajectory of the public finances was recently given a nod of approval from the International Monetary Fund, Britain’s debt has passed 3 trillion pounds ($4 trillion) for the first time ever, requiring 8% of government spending to service it.
Healey said that in forecasts provided by the independent Office for Budget Responsibility, Britain will spend 14 billion pounds more on debt interest this year.
“Those are the storms we face,” he said. “We can’t wish them away.”
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