UK set for difficult budget next month amid Middle East conflict, warns treasury chief

UK Treasury chief John Healey warned on Saturday that the country will face a difficult budget next month due to the Middle East conflict.

In an interview with the Financial Times, Healey said that "the conflict in Iran is likely to have a significant impact on his first budget, scheduled to be presented on October 28."

Healey, who succeeded Rachel Reeves as Treasury chief after Andy Burnham became prime minister in July, told the newspaper he wants to ensure the country has a strong "reserve" to deal with uncertainty amid growing global instability.

However, economists have predicted that Healey will need to raise taxes or implement major austerity measures to protect the £24 billion spending margin that was available to Reeves after her statement last March.

Healey said: "What is happening in the Middle East is negatively affecting inflation, growth, and borrowing costs. It is part of a more dangerous and uncertain world, and it is one of the challenges we face in this country, which we must also address alongside other nations."

The newspaper reported that Healey intends to stick to Labour's 2024 election manifesto pledges not to raise taxes on "working people," such as income tax, national insurance contributions, and VAT, and that a rise in the corporate tax rate is also not expected.

Public finances are under pressure from rising global bond yields, which reached an 18-year high earlier this week. Bond yields have a significant impact on government spending plans, as higher yields increase borrowing costs.

Healey has faced criticism for not committing to the goal of raising defense spending to 3% of GDP by 2030. In June, he resigned as defense minister after failing to persuade the Treasury to commit to this target, a move seen as a major blow to Keir Starmer's government.

Healey acknowledged the difficult economic conditions, saying: "The country is under pressure. People are struggling with the cost of living. Families feel it. We are concerned about the cost of living and about business expenses."

He also reaffirmed his commitment to reducing welfare spending, saying: "We must reduce the cost of welfare and get more people back into the workforce. I know some of the decisions I have to make—and will make—will show their benefits in the years to come."