Chancellor John Healey and Prime Minister Andy Burnham have issued a joint letter to their Cabinet ministers, stating that no additional funds will be allocated for new spending pledges. The directive emphasizes that any new initiatives must be financed through savings found within departments' current budgets.
This unusual communication comes as the government faces a "blizzard of new spending pledges" made during Prime Minister Burnham's first two weeks in office. Healey revealed that ministers have been instructed to prioritize and reallocate funds from existing budgets to accommodate these new commitments.
Among the announced, yet unfunded, measures are plans to cut VAT on consumer energy bills, estimated to cost £850 million; a £2 cap on bus fares, with an anticipated cost of £500 million; and £100 million allocated for support to pubs and live music venues. Earlier, the Conservative party had warned that these pledges could amount to at least £96 billion, potentially increasing taxes for working households.
Healey stressed the importance of fiscal discipline, stating, "If we are serious about new priorities as a second-stage Labour government we have to be serious about – and they have to be serious about – reprioritisation of their plans, their budgets." He added that ministers need to fund new projects "within the budgets they've already got."
The joint letter also stipulates that "all new announcements must be funded from within existing budgets." Healey further elaborated that this requires "being disciplined on spending, looking at the tough choices and being ready to shift funding away from unproductive or legacy programmes that no longer reflect this administration’s priorities." He asserted that each department is responsible for managing within its budget, controlling borrowing, and helping to reduce inflation.
Healey, who previously resigned over defense spending disagreements, has made "economic stability" the cornerstone of his chancellorship. The new government intends to adhere to former Chancellor Reeves' fiscal rules, which aim to end borrowing for day-to-day spending by the end of the decade. Healey acknowledged the current economic pressures, noting the strain on prices, borrowing rates, and inflation, and emphasized the need for "strong financial discipline."
While he did not rule out tax cuts in his upcoming budget on October 28, Healey stated that Britain's "inexorably rising welfare bill must be controlled." He described his upcoming budget as one that will "keep the momentum of the British economy going and keeps the fiscal discipline."
Regarding defense spending, Healey, who advocated for increasing it to 3% of GDP by 2030, stated he could not yet commit to that target. However, he assured that the government is determined to "keep the country safe" and will "set out a clear path to meeting our 3.5 percent Nato commitment in 2035 and set a target date on that path for 3 percent." He also noted that the ongoing conflict in the Middle East presents a significant challenges for financial planning.
Healey indicated that his budget would aim to "move power and money out of Westminster and into every postcode" while assuring it would be "built on fiscal discipline" and meet existing fiscal rules to provide stability for businesses and families. In response, Conservative Shadow Chancellor Mel Stride criticized the government's approach, warning of "89 more days of unfunded spending commitments and economy-damaging tax speculation."