UK Budget: Labour Delivers Stability but Lacks Ambitious Vision

The UK budget, anticipated as a “landmark” and historic event designed to set a new course for Andy Burnham’s government, ultimately proved to be less impactful than expected. Chancellor John Healey’s first budget address, delivered in a measured and steady tone, felt like a damp squib to many. The measures announced included some relief for household energy bills, an increase in the minimum wage, a rise in the state pension, a temporary and smaller-than-expected tax on bank profits, business rate relief for small businesses, adjustments to boost social and affordable housing, and tax-raising powers for regional mayors. As Tory leader Kemi Badenoch pointed out, the prevailing sentiment among the public was likely, “Is that it?” Her critique focused on what was omitted, particularly spending cuts and welfare benefit reductions, which were not anticipated given Mr Burnham’s political stance.

Notably, there was no mention of a “mansion” tax or measures directly targeting the wealthiest. The City, which had braced for more significant changes, expressed relief. UK stocks and gilts saw an increase, a rare positive reaction to a Labour budget, partly attributed to Mr Healey’s emphasis on the full funding of all proposals. Banks, in particular, received a lighter touch than anticipated, with an additional 3% tax on profits for 15 months, a figure lower than what many had prepared for. Bank shares subsequently climbed.

The lack of radical measures was a deliberate choice, making this budget remarkable in its restraint. By doing very little, Mr Healey signalled a significant shift from the approach of his predecessor, Rachel Reeves. Ms Reeves’s first budget, which included a sharp rise in employers’ national insurance and measures against farmers, non-doms, and fee-paying schools, created an impression that Labour was unwelcoming to the wealthy. This approach led to significant backlash from the private sector and a stream of wealthy individuals relocating to more tax-friendly jurisdictions. Mr Healey’s budget, in contrast, is unlikely to prompt such departures, aiming instead to repair the damage caused by Ms Reeves’s policies and reassure international investors.

The government’s aim was to avoid drastic spending on social programs, constrained by the fiscal rule of taxation matching spending. Mr Healey repeatedly used the phrase “breathing-space” to describe the support offered to ordinary households and small firms, primarily to counteract rising energy costs and the increased cost of living. This approach distinguished him from Ms Reeves and also from Liz Truss, whose “mini-budget” caused significant international shock due to its unfunded, free-wheeling nature. Mr Healey’s message was one of stability and careful economic management, intended to build confidence both domestically and internationally.

This budget was, in its own way, historic, presenting an un-Labour-like set of economic changes. Some measures, like the modest increase in the banking surcharge (a total of 6%, still 2% less than a Tory regime introduced in 2016), might have been considered by the Conservatives. The contrast between this restrained budget and the ambitious vision laid out by Mr Burnham at his recent party conference—including a “National Care Service,” addressing youth unemployment, transforming public housing, improving infrastructure, and boosting defence—was striking. Mr Burnham’s vision painted a picture of a future, transformed UK, whereas Mr Healey was tasked with managing the present.

The budget was designed to be uncontroversial and win over voters by offering reassurance and stability without a pre-election tax giveaway. Mr Healey’s responsible and steady approach is seen as a strategic move to increase the likelihood of a ballot victory for Labour. The groundwork for Mr Burnham’s ambitious plans is expected to be laid later, possibly starting next year with a spending review. The current budget, delivered just 100 days into the Burnham administration, was necessarily minor, given the time needed for ministerial changes, party conference preparations, and geopolitical issues. Mr Healey’s brisk and business-like demeanor, reminiscent of his time as defence secretary, earned praise from business leaders, a stark contrast to the negative reaction Ms Reeves’s policies elicited.

The true test will be how Mr Healey and the UK proceed in the coming year. Despite global challenges, the UK economy has shown resilience, outperforming France and Germany. Mr Healey’s decision not to risk this progress, even with high taxes and borrowing, was prudent. The budget signals a firm hand at the tiller, a necessary quality for navigating future storms and securing election victory. This was a cautious start, laying the foundation for future action.