Faisal Islam: The 10-year plan will have to fill the gaps from this 'micro Budget'

Faisal Islam: The 10-year plan will have to fill the gaps from this 'micro Budget'

It was not a mini Budget, but it was still quite small. “Micro Budget” might be the better description.

Small does not automatically mean poor, but it plainly stops short of the radical steps needed to deliver the promised new economic model.

The prime minister Andy Burnham had promised a new “theory of growth”, but none was unveiled.

Instead, this was preamble, a roadmap, a consultation — perhaps the starter before the main course, which now appears to be the PM’s 10-year plan next month.

Though it was left unsaid, the obvious strategic purpose of Healey’s statement was to act as the “anti-mini Budget”.

This “steady as she goes” and predictable fiscal event was designed to avoid the fallout that followed Liz Truss’s mini-budget, when unexpected and unfunded tax cuts unsettled the bond and currency markets.

Markets barely reacted to Healey’s announcement of £65bn of extra borrowing over the next five years — in fact, government interest costs have fallen since Wednesday, despite market turmoil linked to the US-Iran war.

At its heart, the Budget was meant to help Downing Street absorb the shock from the Middle East conflict and its effects on energy and borrowing costs.

If those pressures last, some uncomfortable decisions will have to be faced within the next year. The problem will need to be dealt with, not postponed again.

For now, it creates more time and more “breathing space” for the government and the prime minister’s longer-term plans.

Some of the detail may arrive sooner than expected. On welfare, the Milburn Review process is clearly moving toward some kind of welfare-to-work scheme, possibly even a separate system for younger workers.

That would require upfront spending to subsidise work opportunities, with the hope of saving more later through lower welfare bills. The chancellor has seen Gordon Brown do this twice at close hand two decades ago.

The Office for Budget Responsibility’s (OBR) forecast highlighted the scale of the welfare bill, which is expected to rise to £431bn in 2031 if pensioner support is included.

The chancellor also set out two further long-term markers with little immediate fiscal cost.

On energy, the announced mission for “cheaper power” matters, because it reshapes what had previously been a focus on clean power.

While still committed to Net Zero, a set of technical changes to powers over levies and renewable auctions will aim to reverse the upward pressure on energy costs.

On devolution, the plan to let local mayors keep some extra business rate and income tax revenues is more radical than expected.

There are trade-offs, but it effectively gives regional leaders incentives to grow their economies, workforce and tax base — incentives that are normal elsewhere, but have not existed in the UK’s highly centralised tax system.

Another major challenge is how the PM will reconcile the rest of his “theory of growth” with the chancellor’s spending limits.

Can he present a 10-year plan without setting out the Liverpool to Manchester high speed train line, or reviving some cancelled HS2 lines he backed a year ago?

Beyond the long term, the OBR forecast points to a very difficult economic backdrop until the spring, and a tougher spending review, given the need to meet the 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 entirely believable, given the risk of 5% inflation and falling household income.

A “focused” Budget at an uncertain moment achieved its limited goal of creating a little “breathing space” for households and for the government itself.

But the clear gaps in the Budget will need to be filled by the PM’s upcoming 10-year plan.