In his first fiscal budget, U.K. Finance Minister John Healey announced a series of measures to address the ongoing cost-of-living crisis, which has seen inflation rise to 3.5% in September, largely due to surging fuel costs.
The budget includes the removal of standing charges on household gas heating bills, a tax break extension on electricity for millions of households, and £100 checks for those in the lowest local housing tax bands, costing £2.6 billion. Healey emphasized the need for 'radical change on energy' and acknowledged the inflationary pressures stemming from the U.S.-Iran conflict.
Additionally, he proposed extending small business relief from business rates to more companies in the hospitality, retail, and leisure sectors. The minimum wage will increase by 3.9%, and a planned cut to tax-free savings thresholds has been canceled.
However, Healey also indicated a need to reduce the welfare bill, which has reached 10.7% of GDP, while ensuring vulnerable populations are not neglected. On the technology front, Healey announced significant investments in the artificial intelligence sector, including funding for AI security and a 'covenant' for data centers to ensure they contribute to local communities.
The budget also allocates £10 billion for military support to Ukraine and outlines plans to meet NATO defense spending commitments. Fiscal discipline remains a priority, with Healey asserting that the budget complies with previous fiscal rules, aiming to eliminate the current budget deficit within three years.
The Office for Budget Responsibility forecasts a slight increase in national debt as a share of GDP, but also predicts economic growth. Following the budget announcement, yields on U.K. government bonds fell, and shares in U.K. banks rose as the proposed tax hikes were less severe than anticipated.
Overall, the budget reflects a balancing act between addressing immediate economic pressures and maintaining long-term fiscal health