John Healey faces several tests in delivering a Budget that keeps the UK economy on course to grow. Mauricio Alencar looks at the questions he will have to answer at the despatch box.
Investors are heading into the upcoming Budget with a lot of unknowns. John Healey faces a test in balancing expectations between different groups – businesses, traders, backbenchers and voters – and fulfilling a promise to provide “breathing space” to each.
On the one hand, voters want the Chancellor to support them through a gruelling winter as energy prices set to spike in the coming months. Businesses, who feel bruised after the last two budgets, expect Healey to help rein in their swollen cost bases. Traders are sceptical of a seemingly voracious desire for the government to spend more. And ministers and backbenchers expected Rachel Reeves’ successor to sound a little more Labour.
But he is delivering a fiscal statement, which may not contain many radical measures, against an economic backdrop that has not been benign to the Treasury over the past two years – even if some green shoots in GDP growth may be starting to emerge.
Healey has to answer to major impending economic tests on the disjointed jobs market, spiralling inflation and complicated public finances on Wednesday. Should he find solutions to reverse sluggish growth patterns in the UK economy and provide clarity on his fiscal agenda, he could triumph in the near-impossible task of winning over the three key interest groups.
Healey’s jobs problem
The Chancellor has inherited a problem that is at least partially of the Labour government’s own making.
With youth unemployment surpassing 16 per cent for the first time in 11 years and hundreds of thousands more people being put out of work since mid-2024, Healey has the challenge of reversing a worrying trend in the jobs market. Taxes and new employment regulations have been blamed by multiple business groups for a rapid deterioration in the jobs market.
Should he deliver on a faster drop in the unemployment rate than is currently expected, he could benefit from a £40bn windfall in public finances, according to EY.
As top UK banks cite AI as a reason for slashing headcount, the effort to strengthen the jobs market comes at a tough time. Economists have widely noted that official data did not show enough strong evidence of the technology replacing jobs although Boston Consulting Group director Raoul Ruparel, who was once a special adviser to Theresa May, said a recent fall in payroll data for some young people’s jobs across services industries suggests that there is cause for concern.
Either way, sectors that rely on people working such as care and hospitality, have radically cut the number of work opportunities that are made available to job seekers. Healey’s support for businesses and workers will be judged on whether he manages to incentivise employers to put up more job offers.
The pay problem
By several measures of living standards, a number of government ministers including Torsten Bell have claimed that people’s finances were improving over the last two years.
In 2025, GDP per capita rose by 1.1 per cent after a difficult year of stagnation in 2020. In that year’s Spring Statement, Reeves insisted that growth in real household disposable income would make households up to £500 better off each year. The claims were heavily disputed by think tanks including the Resolution Foundation, who said measures that year would lead to the bottom half of the income distribution being £500 poorer by 2030.
Since the Iran war, growth in living standards is under significant pressure. While, in real terms, pay has grown after a difficult period of high inflation around 2022 and 2023, those gains now look set to be eroded by a spike in prices.
Data for August showed that a rise in real terms pay increases was hanging off a cliff edge, leading economists at City firms to say it was “extremely likely” that workers on average would take a pay cut.
A “breathing space” Budget may quickly come undone if Healey fails to provide some certainty that wages will continue to outpace the rate of consumer inflation.
Controlling debt
After a rapid rise in public debt levels after the pandemic, governments have promised to curb borrowing to ease the burden on public finances.
As the OBR has repeatedly warned, those promises have not been delivered and public debt has continued to march on an upward path. The Office for National Statistics revealed last week it took just six years for gross debt to hit the £3 trillion mark from £2 trillion, having taken about 10 years to rise from £1 trillion.
Labour officials have now stuck to quoting an International Monetary Fund report praising the UK government for its plans to narrow the deficit around 2031. Opponents have said that such a plan to limit borrowing would only come after an election, and the plans could be kicked even further into the future than that.
The Chancellor may have a point to prove to the OBR – and therefore markets – that fiscal consolidation will continue and borrowing will not be loosened.
The growth vision
The likes of Lord Jim O’Neill, the famed economist and ally of Andy Burnham, and Resolution Foundation researchers have suggested the UK economy may be undergoing a productivity boom.
Results on output per hour have shown promising signs since 2024. On an annualised basis, the UK economy is on course to grow by nearly two per cent this year, far outpacing economists’ expectations.
But beneath the headline figures, a dispute among analysts has broken out about what is driving the faster rise in GDP.
While City forecasters surveyed by the Treasury broadly agree the UK economy will grow by between 1.1 and 1.4 per cent next year, there are vast differences in growth of business investment and domestic demand, which underpin consumption levels.
The starkest difference in opinion comes in estimates for government consumption next year, which covers spending on goods and services such as health, education and defence.
Last year, the Confederation of British Industry’s forecast, the industry group for the country’s biggest businesses, suggested that high levels of government spending would boost growth in 2026.
If Healey wishes to provide a firm vision of how he can grow the pie, he may have to indicate just how far the state plans to contribute to a rise in GDP over the coming years.