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\t\tJohn Healey faces a tough road ahead leading to the Budget. PA Wire\t<\/p>\n\t\t\tMonday 07 September 2026 3:56 pm
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\t\t\tMonday 07 September 2026 3:57 pm\n\t<\/p>\n
\t\tJohn Healey faces a tough road ahead leading to the Budget. PA Wire\t<\/p>\n
The Chancellor John Healey says growth will provide the \u201cpathway out of indebtedness and into prosperity\u201d. But the path is a difficult one to tread, write Mauricio Alencar.<\/p>\n
When it was announced that John Healey would be delivering a speech in Coventry, it was assumed that he would be visiting Jaguar Land Rovers\u2019s headquarters with cars and machines providing an apt backdrop for the cameras. Previous chancellors such as George Osborne and Rachel Reeves have chosen JLR sites to deliver flagship speeches in the past.\u00a0<\/p>\n
But Healey was down the road at the Manufacturing Technology Centre<\/a>. At the same time, JLR chiefs were preparing to tell some 4,000 workers they were at risk of being made redundant.\u00a0<\/p>\n The car manufacturing giant has had a brutal 12 months dealing with the fallout of a cyber attack. But, from the perspective of both the public and the government, the problems are symbolic. Treasury and Department for Business staff will be more worried about what job cuts mean for \u201cgood growth\u201d and Andy Burnham\u2019s stated ambition to \u201cpartner\u201d with the private sector.\u00a0<\/p>\n The formal announcement spoiled Healey\u2019s desire to seize the narrative on the UK \u201cturning a corner<\/a>\u201d. In fact, JLR\u2019s announcement may have reminded investors and prospective workers that the economy has not yet taken the right turn.\u00a0<\/p>\n \t\tCan Healey avoid negativity?<\/p>\n Burnham and Healey have signalled their wish to \u201cdo things differently\u201d to their predecessors Sir Keir Starmer and Rachel Reeves. Shortly after taking to government, ministers complained about their fiscal inheritance, the so-called \u00a322bn black hole, as a ploy to justify some benefit cuts and higher taxes.\u00a0<\/p>\n At its surface, Healey\u2019s speech on Monday showed his willingness to be more optimistic. He said the UK had \u201clatent potential\u201d and \u201chuge resilience\u201d. He said there were \u201crelative strengths in dealing with the fiscal challenges\u201d.<\/p>\n But then sprinkled between optimistic statements were rather more negative reflections on the state of the UK economy.\u00a0<\/p>\n He is \u201cdeeply concerned\u201d about the cost of living and business. Economic growth is \u201cfragile\u201d and the country is \u201cscarred\u201d by youth unemployment. The government had plans to lift spirits but it could \u201cnot deliver all this tomorrow\u201d.<\/p>\n Opposition party figures<\/a> have already attacked Healey for not providing any news of substance. Reform UK\u2019s Robert Jenrick called the speech \u201cdreary\u201d while the Conservatives\u2019 Andrew Griffith said \u201cwarm words\u201d would not make growth \u201ca reality\u201d.\u00a0<\/p>\n Both of the parties have said they would cut welfare spending to fund tax cuts. Healey and Burnham have spoken about their ambition to get the welfare bill down without delivering \u201ccrude cuts\u201d. Neither have linked the size of spending on disability or pensions to potential tax cuts, however.\u00a0<\/p>\n Healey may feel he cannot afford to make such promises. After a heavy Labour backbench rebellion, an embarrassing U-turn by Starmer and Reeves on \u00a35bn welfare cuts led to the launch of government reviews lasting more than a year. <\/p>\n \t\t\t\t\tRead more<\/p>\n \t\t\tHealey says growth is \u2018pathway out of debt\u2019 but bats away tax questions<\/a><\/p>\n Proposals laid out by the minister Sir Stephen Timms on personal independence payments (Pips) as well as the completion of a separate review by Alan Milburn on youth unemployment could give the government some cover to introduce cuts although neither report is due until after the Budget<\/a>. It stops Healey from being able to target the \u00a3322bn welfare budget \u2013 most of which is made up of pensioner spending \u2013 for cuts. Healey would then have to roll back public spending boosts previously announced by Reeves if he really wanted to cut taxes by substantial amounts to offer people real \u201cbreathing space\u201d on the cost of living.\u00a0<\/p>\n Headroom halved and the tax rises expected<\/p>\n But even then, business chiefs, government officials and voters understand the prospect of tax cuts are highly unlikely this year. Thomas Pugh, the economist at the accountancy RSM, said on Monday that the Chancellor himself has far less breathing room than Reeves had when the Spring Statement was delivered in early March this year.\u00a0<\/p>\n He calculated the fiscal buffer available \u2013 based on borrowing targets that are wholly dependent on judgements made by the Office for Budget Responsibility \u2013 at \u00a311.5bn, down from \u00a323.6bn. The erosion has come as gilt yields have spiked due to global bond market turmoil, pushing up government borrowing costs. The government is projected to spend more than \u00a3116bn in debt interest this year, rising to about \u00a3137bn in 2030. This is higher than the education budget, the second largest government department.\u00a0<\/p>\n<\/p>\n The timing of a rout in bond markets is particularly damning for Healey, he said, as the snapshot time period the OBR uses to make its fiscal forecasts is likely to come around mid-September. It could add to significantly higher cost projections in its fiscal forecasts than if the OBR had taken data from June when yields were slightly lower.\u00a0<\/p>\n Lower migration and higher inflation projections could also further cost Healey this year, according to Pugh. The City economist added that this level of headroom would be above what Reeves twice had, meaning the Treasury can \u201cprobably live\u201d with a buffer<\/a> above \u00a310bn.\u00a0<\/p>\n But a rise in bond yields and poorer forecasts \u201cdoes leave the Chancellor in a precarious position\u201d, Pugh added.\u00a0<\/p>\n \u201cThe reason Reeves decided to more than double the headroom was because such a narrow buffer created endless speculation about what taxes would have to go up every time there was a change in gilt yields. That speculation was bad for growth.\u201d<\/p>\n Like their predecessors, the best Healey and Burnham could hope for is for President Trump to find a way to open up the Strait of Hormuz for the foreseeable future. Oil and gas prices would likely fall as firms expect trade flows to resume, triggering a sequence of events that favours the UK.\u00a0 Inflation expectations would likely fall back, interest rate hike expectations<\/a> would ease, bond yields would drop and the government would see more room for manoeuvre in public finances.\u00a0<\/p>\n<\/p>\n But there is an alternative for the Chancellor. He said in his speech that growth was the \u201csustainable pathway out of indebtedness and into prosperity\u201d. Beyond greater devolution and some planning reforms, it is not clear what Healey\u2019s growth vision is or how quickly he plans to deliver it. Andy Haldane, the former Bank of England chief economist who advised Burnham, and Rishi Sunak are among those saying that the Chancellor should rule out tax hikes to allow businesses to proceed with planned investments and for households to spend more without fearing a drop in income.\u00a0<\/p>\n Tax reform, improving trade and an overhaul of public sector performance may be within the scope of measures that Healey could take to lift growth, however politically unpalatable some changes may be. But in his speech on Monday, there was no mention of the word \u201cradical\u201d. In a recent interview, he suggested he would provide \u201ccontinuity\u201d from the last government. Researchers at Capital Economics have also remarked that new administrations can only do so much to boost growth and productivity, with just two of nine governments since 1955 presiding over a period of faster GDP growth than the government before. <\/p>\n Remarks on Monday morning underpin the Chancellor\u2019s intention to cut through the noisy gloom hitting UK plc. But bosses are unlikely to be getting any instant remedy to their woes in the next few months.\u00a0Healey wants to get the UK economy on track but the corner he is driving it towards looks difficult to get around.<\/p>\n \t\t\t\t\tRead more<\/p>\n