John Healey will promise to give the country “breathing space” today as he delivers his first Budget, with much of the support expected to be directed towards people claiming benefits.
The Chancellor is due to unveil a crucial package of financial measures at lunchtime, as he attempts to balance the books while facing pressure from the Middle East crisis and Andy Burnham’s spending demands.
Mr Healey invited consumer champion Martin Lewis to No 11 this morning as he announced plans to abolish standing charges on gas bills.
The founder of MoneySavingExpert has campaigned for the change for many years.
However, the £108-a-year charges will not be scrapped until at least next year. Some larger households could ultimately be worse off because the cost will be transferred to gas unit rates.
Further help with rising energy bills from January is also expected to be focused on poorer households, including a possible increase in the £150-a-year Warm Homes Discount available to people receiving benefits.
Mr Healey has set aside £5.5 billion to increase benefits for 10 million people by 3.5 per cent, matching the rate of inflation. Major welfare reforms, meanwhile, have been postponed until later in the Parliament.
The Office for Budget Responsibility’s assessment of the economy will be central to the Chancellor’s plans today.
Analysts believe Mr Healey may have gained additional room for manoeuvre from higher inflation, which is expected to push earnings up faster than previously forecast.
That could pull millions more people deeper into the tax system, as frozen income tax thresholds continue to deliver a “stealth” tax raid scheduled to remain in place until 2031.
The additional revenue could help offset higher costs linked to the Iran war, according to the Institute for Fiscal Studies, although it would place significant pressure on government spending plans.
Rather than cutting expenditure or raising taxes, Mr Healey could also choose to reduce the £24 billion cushion he holds against the Government’s fiscal rules.
Other announcements expected as the Chancellor promises a “steady as she goes” Budget include:
John Healey invited consumer champion Martin Lewis to No 11 this morning as he announced that standing charges on gas bills would be scrapped
Foreign Secretary Ed Miliband attended Cabinet this morning to hear details of the Chancellor’s plans
Home Secretary Shabana Mahmood was also at No 10 for today’s pre-Budget Cabinet meeting
Mr Healey will present the Budget to Cabinet this morning before taking part in the traditional photographs outside No 11 with his Red Box.
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Before his statement to the Commons, he acknowledged that the country was experiencing a “difficult moment” and promised that any changes would be made “responsibly” and within Labour’s fiscal rules.
He said: “Breathing space for today and fresh hope for the future. That’s what today’s Budget will deliver.”
‘The world’s a highly uncertain place. Conflicts abroad are pushing up energy prices, and the cost of living here at home is piling pressure on families, on businesses, and on our public finances.
‘But Britain’s economy is showing real signs of resilience: investments up, productivity is growing, and we had the joint fastest growth in the G7 in the first half of this year.’
Mr Healey added: ‘This Budget is designed to give households breathing space from some of the everyday costs, provide targeted support for businesses and self-employed people, and to start the long-term action needed to get energy costs down for good.’
The Chancellor was accused of an ‘insult to families’ yesterday after the Treasury revealed measures will include tariff reductions worth just 40p a week off average grocery bills, including cutting the price of gherkins.
Sources said Mr Healey would not set out welfare reforms, despite official projections suggesting sickness benefits will jump from £83billion last year to £109billion by the end of the decade.
He is expected to outline modest increases in defence spending as well, including filling a £5billion hole in the Defence Investment Plan by cutting Net Zero and road projects.
But he is not expected to commit to raising defence spending to 3 per cent of GDP by 2030, despite resigning as defence secretary over the issue earlier this year.
Government sources said Mr Healey is planning a low-key ‘steady as she goes’ Budget after Ms Reeves imposed record tax hikes in Labour’s first two years.
That left the tax burden heading towards its highest ever proportion of GDP, driven by the long-running freeze on tax thresholds.
Mr Healey and Andy Burnham preparing for the Budget earlier this week
Opposition MPs warned that Britain cannot afford to duck welfare reform again. Shadow treasury minister Richard Fuller said: ‘Britain’s public finances are on a cliff edge.
‘A “do nothing” Budget will not solve the problems staring us in the face: a spiralling welfare bill, a crippling tax burden, mounting debt and rising global threats.
‘When we see the Budget, we must ask: Is it fair to take more and more money from hard-pressed working families just to spend it on more benefits?
‘Will more tax hikes and more borrowing make us better off? Labour are running scared of the big decisions necessary to get our country back on track.’