John Healey warns of tough first budget as Middle East war puts pressure on economy

John Healey says he is in ‘lockstep’ with Andy Burnham in determination to stay within fiscal rules. Photograph: Chris J Ratcliffe/Reuters View image in fullscreen John Healey says he is in ‘lockstep’ with Andy Burnham in determination to stay within fiscal rules. Photograph: Chris J Ratcliffe/Reuters John Healey warns of tough first budget as Middle East war puts pressure on economy Chancellor says he wants to ensure country has ‘buffer’ against uncertainty as global bond yields hit 18-year high The chancellor has indicated that the UK will face a tough budget next month due to Trump’s war in the Middle East. In an interview with the Financial Times, John Healey said the conflict in Iran would probably have a strong influence on his first budget on 28 October. Healey, who succeeded Rachel Reeves when Andy Burnham became prime minister in July, told the newspaper he wanted to ensure the country had a robust “buffer against uncertainty” amid increasing global instability. The newspaper said he planned to stick to Labour’s 2024 manifesto pledges not to raise taxes on “working people”, such as income tax, national insurance contributions or VAT, and was also not expected to raise the rate of corporation tax. The public finances are under pressure from soaring global bond yields , which hit an 18-year high earlier this week. Bond yields have a significant impact on government spending plans, as higher yields drive up borrowing costs. Healey has faced criticism for failing to commit to the goal of raising defence spending to 3% of GDP by 2030. In June, he resigned as defence secretary because he was unable to get the Treasury to commit to the target, in what was seen as a fatal blow to Keir Starmer’s government. Acknowledging tough economic conditions, Healey said: “The country’s under pressure. People are under pressure with the cost of living. Speaking to Times Radio earlier this week, he said: “If you have the markets carrying on doing what they’re doing globally … eventually they’re going to have absolutely no choice [but to cut spending] because the penalty of the debt servicing cost and the knock-on effect to other markets including mortgage rates will be too severe for a government to resist.” skip past promotion after promotion The triple lock, introduced in 2010, means that state pension increases annually in line with inflation, average wage growth or 2.5% – whichever is highest. It has led to an increase of about £16bn in the state pension bill.