John Healey will deliver his first budget on Wednesday as UK households and businesses come under pressure from the unfolding economic shock caused by the war in the Middle East.<\/p>\n
Against a febrile backdrop in global markets, the chancellor is facing a delicate balancing act to provide \u201cbreathing space\u201d measures to ease the cost of living crisis while increasing growth and sticking to the fiscal rules.<\/p>\n
Healey will also flesh out Andy Burnham\u2019s pledge to deliver \u201cgood growth in every postcode<\/a>\u201d, with measures to hand local leaders more money and power.<\/p>\n Here are six charts that will underpin the chancellor\u2019s decisions.<\/p>\n Sticking to the fiscal rulesFscal headroom chart<\/a><\/p>\n At the spring statement, Healey\u2019s immediate predecessor, Rachel Reeves, left herself \u00a323.6bn of \u201cheadroom\u201d against the fiscal rules, which require day-to-day spending to be matched by receipts by the end of this parliament.\n <\/p>\n However, the buffer is widely expected to have been slashed by a surge in debt interest costs, as the war in the Middle East causes a global inflation shock that is rattling the bond markets.<\/p>\n The Resolution Foundation estimates headroom has been halved to about \u00a312bn. Much will depend on the judgment of the Office for Budget Responsibility<\/a> (OBR), the independent Treasury watchdog, which will take into account the hit from rising debt costs, but also other positive and negative developments for the public finances \u2013 including inflation, pay growth, employment and productivity.<\/p>\n Healey is thought to be willing to allow the buffer to take a hit. However, jittery bond investors will be looking for him to retain some headroom to guard against further negative shocks, with at least \u00a314bn thought to be needed to avoid provoking a bond market reaction.<\/p>\n \u2018Breathing space\u2019 measuresEnergy price cap chart<\/a><\/p>\n The chancellor has pledged \u201cbreathing space\u201d measures for households and businesses grappling with the cost of living crisis, as the energy price shock fuelled by the Iran conflict hits consumers.<\/p>\n Petrol and diesel prices<\/a> have surged close to record highs and energy bills are forecast to increase to \u00a32,000 a year from January<\/a> for the typical household. Since 2021, consumers have paid almost \u00a314,000 on average in additional costs<\/a> for mortgages, loans, energy and water bills.<\/p>\n Healey is thought to have earmarked more than \u00a31bn to help energy consumers<\/a>, the bulk of which will go on increasing the discount given to households on certain benefits. He has also vowed to help businesses, and has been urged to extend a cut in fuel duty<\/a>.<\/p>\n Alongside energy support, Andy Burnham has already promised Labour<\/a> will cut living costs through other measures \u2013 including a new mortgage scheme for first-time buyers, and a pledge to build more social homes.<\/p>\n Rewiring the stateTax revenue chart<\/a><\/p>\n Burnham has made \u201cgrowth in every postcode<\/a>\u201d his top political slogan since becoming prime minister. With devolution likely to be a central theme of the budget, a raft of measures are expected to add some substance to the rhetoric.<\/p>\n Central to the devolution package will be plans to allow local leaders in England to retain a share of income tax, alongside a new \u00a31.5bn borrowing facility for directly elected mayors<\/a>.<\/p>\n Britain is the most centralised G7 country for tax and spending policy, and is among the most economically unequal, according to the Centre for Cities thinktank. The aim of redrawing the political map \u2013 including establishing a new hub for No 10 in the north<\/a>, based in Manchester \u2013 is to increase regional economic growth, and with it the performance of the UK economy at large.<\/p>\n Burnham has also signalled that a strengthened industrial strategy will be key to his agenda, as well as measures to support high streets and towns.<\/p>\n Tackling the youth jobs crisisNeet interactive<\/a><\/p>\n The prime minister has said Britain is facing an \u201ceconomic catastrophe and a moral failure\u201d after a rise in the number of young people not in education, employment or training (Neet) to almost 1 million.<\/p>\n Tackling the youth jobs crisis will be a key budget theme. Business leaders have pressed Healey for tax cuts<\/a> and help with labour costs to encourage youth recruitment, while ministers have explored options for overhauling the benefits system and making changes to apprenticeships.<\/p>\n Healey has indicated that welfare reform will be critical. There could though be costs attached \u2013 as any savings from changes to the system could be offset by higher spending on employment support. The government is handling the process carefully to avoid a repeat of the welfare rebellion faced by Keir Starmer, and is still awaiting recommendations from two key reviews \u2013 by the former Labour cabinet minister Alan Milburn and the Department for Work and Pensions minister Stephen Timms.<\/p>\n The government is understood to favour handing local leaders more power and money to support young people as part of the solution. Analysis from the Youth Futures Foundation, a charity, shows the risk of a young person becoming Neet is geographically uneven: rates are significantly higher in Blackpool, Birmingham, and Bradford than in Bath, Harrogate or Guildford.<\/p>\n Increasing defence spendingUK defence spending interactive <\/a><\/p>\n Having resigned as Starmer\u2019s defence secretary over funding, Healey is widely tipped to use his budget to find more cash for the military. Burnham has also spoken of the importance of the defence sector for his reindustrialisation plans.<\/p>\n First, the chancellor will need to find an additional \u00a31bn a year to fund Labour\u2019s defence investment plan<\/a>. Announced by Starmer in his final weeks in office, that put defence spending on track to reach 2.7% of gross domestic product by 2029.<\/p>\n However, Healey has expressed an ambition to spend 3% by 2030. The Institute for Fiscal Studies estimates an extra \u00a311bn would be needed in that year. Longer term, the government is targeting spending of 3.5% of GDP on defence by 2035. This is equivalent to a \u00a325bn increase in today\u2019s terms.<\/p>\n Repairing the economic damage of BrexitNet migration chart<\/a><\/p>\n Burnham reopened the debate over Brexit in his speech to Labour conference in Liverpool, arguing that leaving the EU had damaged the UK economy and failed to bring the benefits promised.<\/p>\n This week\u2019s budget is expected to underscore the economic hit, including from a drop in net migration.<\/p>\n