John Healey prepares UK budget focused on cost of living relief

Chancellor John Healey is preparing to deliver his first budget on Wednesday, pledging targeted relief for households amid intensifying cost of living pressures while postponing larger tax and spending choices until next year.

Speaking in a pre-budget video, Healey conceded that Britain is navigating a difficult period shaped by international conflicts that are pushing up energy expenses and domestic living costs. However, he maintained that the government would act responsibly within its fiscal framework to give families some breathing space and build economic resilience.

The Treasury faces constrained finances, worsened by global market instability linked to conflict involving Iran and climbing interest rates on state borrowing. On Tuesday, the cost of issuing fresh five-year government bonds climbed past 5%, reaching levels unseen since 2008. Meanwhile, inflation reached an in-year peak of 3.5% last month, with business distress rising and consumer sentiment dropping sharply.

To ease household budgets, the chancellor is set to introduce temporary support for lower-income households ahead of an expected jump in winter power costs, alongside longer-term energy market changes. Observers also anticipate the cancellation of an upcoming fuel duty hike and an end to the strict earnings limit penalising recipients of the carers' allowance.

The minimum wage is projected to rise by close to 4%, though younger workers under 21 will see a slower rate of increase due to concerns about employment access. Pension protections are also expected, shielding nearly one million individuals from income tax, alongside expanded terms for the Help to Buy programme.

To generate revenue, Healey is expected to target the banking sector by rolling back earlier reductions to the bank surcharge, which could secure more than £2bn annually. Digital retail marketplaces will also face requirements to collect tax on behalf of third-party vendors.

Major fiscal shifts are being held back. Long-term roadmaps for lifting defence spending to 3% of national income are expected to wait for next year's spending review, despite an anticipated initial funding injection for military industries. Clean energy sectors such as hydrogen and carbon capture could see funding scaled back to manage costs.

The approach has drawn criticism from opposition parties. Conservative shadow chief secretary to the Treasury Richard Fuller warned that avoiding hard choices on debt and welfare would leave public finances in jeopardy, while Liberal Democrat deputy leader Daisy Cooper argued that a cautious package fails to address the severe squeeze facing families and businesses.