Healey Warns of 'Tough' First Budget as War Hits the Economy
The Chancellor used an FT interview to prepare the country for a hard Budget on 28 October: “What’s happening in the Middle East is hitting inflation, it’s hitting growth, it’s hitting borrowing costs.” John Healey pledged a “buffer against uncertainty” above his fiscal rules — declining to size it — and said he and the Prime Minister are “in lockstep in our determination to meet the fiscal rules”. He confirmed the Treasury’s discount rate will be cut to favour long-term regional projects, but pointedly did not recommit to 3% defence spending by 2030.
This is expectation management with the OBR’s clock ticking: the yield snapshot that fixes his arithmetic is being taken from a market that just closed the week at 5.13% on the 10-year, and a chancellor who says “tough” in September is booking permission for taxes in October. The Iran-war framing is both true and convenient — borrowing costs are genuinely war-inflated, but blaming Tehran for the fiscal position also answers Lord O’Neill’s charge that the government’s own promises spooked the market. The genuinely new policy — cutting the green book discount rate — is quiet plumbing with loud consequences, tilting appraisal maths towards exactly the northern infrastructure the Burnham project exists to build. The defence hedge, dropping 2030 for NATO’s 2035, hands the Conservatives their weekend attack. Watch Monday’s growth speech — the argument’s other half.