Chancellor John Healey presented his first budget by preemptively citing global economic challenges such as the wars in the Gulf and Ukraine as potential disruptors to official forecasts.
According to the Office for Budget Responsibility (OBR), economic growth for the current year has been revised up slightly to 1.2 percent from 1.1 percent. However, growth for the following year has been downgraded from 1.6 percent to 1 percent, signaling anticipated tough economic conditions. The OBR also forecasts inflation to reach nearly 4 percent in early the new year, double the official target, suggesting a period of stagflation.
Despite these projections, Healey emphasized a commitment to 'fiscal discipline'. Critics, however, point to an increase in the projected budget deficit for the 2026-27 financial year, now forecast at £132 billion, a figure largely consistent with the previous year's deficit. This contrasts with earlier projections made in late 2024, which estimated the deficit at £89 billion.
Since taking office, Labour has reportedly added a cumulative £260 billion in borrowing over five years to existing deficit plans. The recent budget further increases projected borrowing by an additional £65 billion by the end of the decade. This increased borrowing has occurred alongside what is described as the highest tax burden in British history, yet economic indicators such as growth, youth unemployment, and job vacancies show concerning trends, and living standards remain stagnant.
A significant factor contributing to higher-than-expected borrowing is the increased cost of servicing the national debt. This year, debt servicing costs are estimated to be around £120 billion, exceeding combined spending on defense and law and order. Projections indicate that by 2031, annual debt service costs could reach £160 billion, with spending on health and welfare expected to be higher.
Critics contend that Labour's approach to deficit reduction involves increasing borrowing in the near term and deferring spending cuts to later years, a strategy they argue has not materialized in the past. The current plans suggest real-terms cuts of 2.3 percent in public spending between 2028-29 and 2031-32, which are viewed skeptically by some observers.
Difficult spending decisions, such as increasing defense expenditure or addressing the welfare budget, appear to have been postponed. The total welfare budget is projected to rise, with an updated forecast for 2031 now at £431 billion, an increase from the previous £406 billion prediction.
The budget also introduced several tax changes, with the doubling of the bank surcharge noted as a measure expected to generate substantial revenue. However, concerns remain that these changes will further complicate the tax code.
Furthermore, the budget's impact on living standards is questioned. Real household disposable income is forecast to stagnate for the remainder of the decade, with living standards for most families in 2030 potentially no higher than pre-Covid levels in 2019, mirroring a trend of stagnant living standards experienced under the previous Conservative government.
Healey's budget has been described as an attempt to mitigate immediate economic pressures through various measures, but critics argue it misses an opportunity to address deeper economic issues and reverse perceived national decline.