Healey’s Budget must keep the stronger economy going amid gathering clouds

There have been almost no Budget leaks.

The chancellor’s aides are using intelligence-style security measures to protect its contents: the Budget has been divided into “compartments”, with very few people allowed access to all of them. There are codenames. The IT has been locked down, and ministers who see the plans must sign a digital pledge not to brief the media.

That level of secrecy reflects the belief that speculation around the last Budget, sometimes fed by insiders, was economically destabilising.

As a recent former defence secretary, Chancellor John Healey has adopted these strict procedures, and in most of his public appearances and interviews he has stuck firmly to the Budget omertà, much like his fellow Yorkshireman Geoffrey Boycott’s sometimes ultra-defensive approach on the cricket field.

The economic backdrop has been positive - growth has come in better than expected, and the International Monetary Fund has praised the UK for “standing out” among the G7 countries for at least planning to reduce borrowing.

John Healey has embraced strict security procedures to keep this year’s budget secret

The bond market’s reverse beauty contest, in which investors identify the countries they trust least, has moved on from Britain. Traders I sometimes hear from who once concentrated on UK borrowing costs are now more focused on “le spread” - the widening gap between French and German borrowing costs, with the former higher than the latter - and on America’s long-term debt outlook.

Even so, there are clouds ahead. Inflation rose in September to 3.5%, more than forecast, and borrowing figures were also higher than expected. That makes an imminent Bank of England rate rise very much possible, with the knock-on effect of higher mortgage payments for some.

Investor confidence depends not only on the Budget arithmetic adding up on Wednesday, but also on belief that the growth plans are credible and on the sense that Downing Street can actually get MPs to pass the Budget.

The question for John Healey is whether he can produce a Budget that sustains the growth recovery and provides the cost-of-living help his backbenchers want, while also reassuring markets that borrowing will remain under control.

“Is it resilient, or is it actually strong?” has been the tone of the debate among economists about the curious state of the UK economy ahead of what is a crucial Budget.

The UK is the fastest-growing G7 economy so far this year, with growth of 0.6% in Q1 and 0.5% in Q2. The widely held expectation of stagnation in the second half is being challenged, with Q3 on track for 0.6 to 0.8%.

Each quarter has delivered growth twice as fast as the Office for Budget Responsibility (OBR) and independent forecasters predicted in March. This is the strongest growth in the first eight months of a year since 2017, excluding the post-lockdown reopening.

It is more resilient than it was in 2022. Back then, the Ukraine war, huge energy bailouts and Liz Truss’ mini budget combined to leave the UK with the highest borrowing costs in the G7, in what financial markets mocked as a “moron premium”.

Then last year, amid repeated policy U-turns, UK borrowing costs rose the most of any G7 country.

This year the gap has narrowed, as uncertainty over the US and France has taken centre stage, but all advanced economies are feeling the strain of the Iran war energy shock.

Inflation has risen, but not only in Britain. Reforms to the electricity market have weakened the link between gas and electricity prices, so gas spikes now have less effect on electricity bills than before, helping keep inflation lower than it otherwise would be.

The fact that, so far, the Iran war has been more of an oil shock than a gas shock - and the UK is more exposed to gas - has also helped. Meanwhile, the large amount of AI and tech investment in the UK is giving the numbers another lift.

The overall result is that the gloomy predictions of recession, of being hit hardest by the Iran war, and in some circles of imminent national bankruptcy, have not come to pass.

That economic resilience in the early part of 2026 has continued through the first three months of the Burnham-Healey period in Downing Street, helped by a lull in the Iran war and the energy price shock.

Post Liz Truss’ mini-budget the UK faced the highest borrowing costs in the G7

Burnham was advised on entering Downing Street that if consumers could at least feel more confident, they might save less and spend more, helping to lift growth.

So far Burnham and Healey seem to be leaning on a set of relatively low-cost “feel-better” measures - such as capped bus fares and a temporary VAT cut on household energy bills - that have boosted confidence without materially raising spending.

But there is not much spare cash, which limits how much can be done through “temporary and targeted” measures. And by January, the clouds on the horizon could be overhead, with typical energy bills forecast to rise by 16%, interest rates possibly higher, and a lingering fear that the AI bubble could burst.

At a gleaming hi-tech robotics research facility in Coventry last month, John Healey tried to sketch the broad shape of his economic approach. During a walkabout at the Manufacturing Technology Centre, I asked him whether there had been too much doom-mongering.

“I know the global conditions mean that it is hard… we have huge latent potential in this country. Great talent, and deep capital markets.

“The challenge now is to make sure that we balance the books, we manage and control public spending, and the prime minister and I are in lockstep in our determination to meet the fiscal rules with a buffer,” he said.

The giant orange robot arms whizzing around were being trained by AI to use lasers to carve the most intricate metal shapes for prototype parts for the jet engines of the future. The Budget manoeuvres Healey needs may require even greater precision.

The key question is whether he has decided to impress the markets and explain himself to his MPs, or to impress his MPs and explain himself to the markets. Based on my three interviews with him in recent weeks, it looks more like the former than the latter.

At Labour conference Healey wore the same tie once worn by Gordon Brown

The answer may not be in his speech at all, but in the borrowing tables that will show how much the government expects to borrow in the years ahead, published in the OBR’s forecast released - assuming there is no repeat of last year’s disaster - when Healey takes his seat in the House of Commons at around 13.00.

Soon after that, as Conservative leader Kemi Badenoch delivers the Opposition response, the real reaction the chancellor’s team will be watching for is whether the markets move, especially when the Debt Management Office publishes the “gilt remit” - the details of any changes to its plan to sell UK government bonds to investors.

My impression is that every effort is being made to keep this figure as low as possible, and to help push down medium- and long-term borrowing rates for the government and for mortgages. (It was at this point in 2022 that markets recoiled at the prospect of how much extra they thought the government would need to borrow after Liz Truss’ mini budget.)

From Healey’s first day in office, the message of prudence was effectively tattooed on him. He has spent more time in the Treasury than any recent chancellor. From 2002 to 2007 he served five years as a junior minister under Gordon Brown, covering five finance bills, five Budgets, pre-Budget reports and two Spending Reviews.

Healey says he will take on some of the challenges Rachel Reeves found difficult to resolve

For his Labour Party conference speech, Healey wore Brown’s old conference tie. But the Treasury he returned to this year is very different in important respects. When his predecessor wore that tie, the Treasury was in annual surplus, not facing a £120bn deficit on top of a £3 trillion total national debt.

I asked him shortly afterwards, and just before he was hurried off to a meeting of the government’s emergency COBR committee on RAF Fairford, whether he would have another go at some of the issues that proved so difficult for his predecessor, former Chancellor Rachel Reeves.

He replied: “100%. I was very clear to the conference today and the public beyond. There isn’t the money that there was in the 1990s. People understand that. The public aren’t daft.

“Running through the Budget I deliver must be fiscal discipline and the maintenance of control on the public finances, because otherwise we won’t get on top of the debt costs.”

One intriguing aspect of what may emerge on Wednesday is that this theoretically more left-leaning Labour government appears to think it has the political room to save money on welfare payments.

The goal is to get some of the 1.35 million people currently out of work with mental health problems back into jobs.

Some reports suggest that some affected younger people may see benefits payments cut, with the government instead putting more into helping them into work and keeping them there through offers such as in-work therapy.

Back in Healey’s time under Gordon Brown, there was no OBR. Then, late Budget arithmetic problems were sometimes dealt with by an optimistic forecast tweak, a change to the date of the economic cycle, or by choosing a stronger long-term growth rate.

Now the OBR’s judgement is vital - how far it accepts projected welfare savings, or even the weight it gives to stronger GDP figures, matters greatly.

The larger point is that the chancellor must be struck by the contrast between the sheer power of Brown’s Treasury to do what it wanted and the reality he now faces: OBR constraints, manifesto red lines, bond markets, heavy debts and an energy shock.

There are reasons to delay some of the hardest decisions beyond this Budget, such as how to pay for the desired increases in defence and social care spending. The economic outlook could improve if the Iran war settles at some point in the next few months, and after revised statistics the OBR may also have reason to revisit last year’s downgrade to long-term economic growth.

There is a conceivable path to a forecast next year with higher growth, lower inflation and lower debt interest costs, which could plausibly improve the public finances by tens of billions.

That would be a far more comfortable basis on which to judge the pace of those major spending increases. It may also be an attractive option for anyone thinking about an election. Former Treasury officials complain: “There is always a reason for procrastination.”

Expect the Chancellor to praise the resilience and strength of the UK economy and try to preserve it, while spreading growth more evenly across the country. His central judgement, though, will be how to balance extra financial and economic support against the danger of borrowing costs remaining elevated.

He will try to create breathing room. It may be needed not only for households and families, but for the Exchequer itself.