Healey's 'micro Budget' wins breathing space, but gaps remain for 10-year plan
BBC Business analysis says the chancellor's deliberately small fiscal statement avoided market shocks, yet the prime minister's 10-year plan will have to fill the gaps it left.
At a glance
- Chancellor Healey's 'micro Budget' avoided the market turmoil that followed Liz Truss's mini-budget, BBC Business analysis says.
- Markets did not react to £65bn of extra borrowing over five years, and government interest costs have fallen since Wednesday.
- The Budget left gaps that the prime minister's 10-year plan, due next month, will have to fill.
Chancellor Healey's fiscal statement was no mini-Budget. It was, as BBC Business analysis puts it, a "micro Budget": small, predictable and deliberately uneventful, in the UK and aimed at being the "anti-mini Budget".
The strategy was to avoid the aftermath of Liz Truss's mini-budget, when unexpected and unfunded tax cuts spooked the bond and currency markets. This time the markets did not even flicker at the announcement of £65bn of extra borrowing over the next five years. Against a backdrop of market turmoil caused by the US-Iran war, government interest costs have actually fallen since Wednesday.
Breathing space, not a new growth model
The statement did not unveil the new "theory of growth" that the prime minister, Andy Burnham, had promised. The analysis describes it as preamble, roadmap and consultation — the starter to a main course that appears to be the PM's 10-year plan, due next month.
The core purpose was to get Downing Street through the effects of the Middle East conflict shock on energy and borrowing costs. If those pressures prove enduring, the analysis warns, unpalatable decisions will have to be grasped within the next year rather than kicked down the road again.
On energy, the "cheaper power" mission announced marks a shift from the previous focus on clean power, although the commitment to Net Zero remains. Technical changes to powers over levies and renewable auctions are intended to turn the tide on additional pressure on energy costs.
On devolution, allowing local mayors to keep some extra business rate and income tax revenues is more radical than expected. It provides incentives for regional leaders to grow their economies, workforces and tax bases — normal elsewhere, but new to the UK's highly centralised tax system.
Constraints and forecasts
The chancellor's spending constraints leave open how the PM will square the rest of his growth theory, including whether a 10-year plan can be set out without detailing the Liverpool to Manchester high-speed line or a rebirth of cancelled HS2 lines he championed a year ago.
OBR forecasts point to a very tricky economic backdrop until the spring and a trickier spending review, given the need to accommodate a new defence target of 3% of national income by 2030. The PM's insistence that he will not call an election for a year is believable given the risk of 5% inflation and declining household income.
The analysis concludes that a "focused" Budget at an uncertain time achieved its narrow aim: a little breathing space for households and for the government itself. But the evident gaps will need filling in the prime minister's coming 10-year plan.
Source: BBC Business.
Questions and answers
- What is a 'micro Budget'?
- BBC Business analysis uses the term for Chancellor Healey's deliberately small and predictable fiscal statement, which set out to be the 'anti-mini Budget' and avoid unsettling the markets.
- How much extra borrowing was announced?
- £65bn of extra borrowing over the next five years. Markets did not even flicker at the announcement, and government interest costs have fallen since Wednesday.
- What is in the prime minister's 10-year plan?
- The plan is due next month and is expected to set out the PM's promised 'theory of growth'. The analysis says it must answer questions on high-speed rail between Liverpool and Manchester and cancelled HS2 lines.
