John Healey used his first speech as UK chancellor to try to calm bond markets, pledging spending control as a think-tank warned his fiscal buffer could fall from almost £24 billion to as little as £5 billion before next month's Budget. He gave no detail on where cuts would fall and dodged questions on tax rises and the pensions triple lock.
Fiscal buffer under pressure
Healey's first speech as chancellor came as the Resolution Foundation warned that bond market turbulence and other factors could cut his fiscal buffer from almost £24 billion to as little as £5 billion. Other forecasters see the headroom left by predecessor Rachel Reeves as more likely to be halved, but the think-tank's downbeat projection set a tough backdrop for a speech meant to project optimism.
He said he wanted to keep a fiscal buffer to protect against uncertainty. However, he gave no indication of where he would make early cuts to public spending, with big decisions on the welfare budget deferred until next year. He also dodged questions on ending the pensions triple lock and would not say whether he would raise taxes in the Budget on October 28.
Gilt yields tick higher
The 10-year gilt yield, the benchmark for UK borrowing costs, rose 0.05 percentage points to 5.18% on Monday, weakening in line with other European markets after oil prices rose in afternoon trading. Bond yields rise as prices fall.
Mike Bell, head of market strategy at RBC BlueBay Asset Management, said the chancellor addressed fiscal sustainability without detailing what achieving it would require. Economists expect Healey to raise taxes at the Budget to rebuild his fiscal headroom, which the Resolution Foundation said has fallen to just £5 billion, reflecting the economic hit from the Iran war, higher government borrowing costs and unfunded policy commitments. Sophie Hale, research director at the Resolution Foundation, said the figures point to tough trade-offs on tax and spending at the Budget.
Growth pledge and devolution plan
Speaking at the Manufacturing Technology Centre near Coventry, Healey said his defining mission as chancellor was growth and pledged support for businesses. According to the Financial Times: "Staying true to our values means being honest about the need to control public spending."
He said the Budget would set out a roadmap for greater fiscal devolution, letting regions retain business-rates revenue and a share of local income tax raised in their areas from 2028, and outlined plans for public finance institutions to channel more investment into the private sector. The Conservatives said much of the speech could have been delivered by Reeves, with shadow chancellor Andrew Griffith arguing that Healey sounded like his predecessor and that warm words on growth would not make growth a reality.
Source: Financial Times
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