PRESS: UK chancellor to fund Budget giveaways without extra borrowing

UK Chancellor John Healey is expected to fund new spending commitments and tax giveaways in this month's Budget through higher taxes or spending cuts rather than additional borrowing, the Financial Times reported on Wednesday.

Citing people briefed on Budget preparations, the FT said the October 28 fiscal package would be "scorecard positive" in 2029-30, the final year of the parliament, meaning any additional discretionary spending would be fully funded.

The approach would align with recommendations from the International Monetary Fund, which has urged governments to maintain fiscal discipline and ensure new spending commitments or tax reductions are adequately financed.

The newspaper reported that Healey is expected to introduce targeted, time-limited support for households facing higher winter energy bills and abandon planned fuel duty increases of 3 pence per litre in January and 2p in March.

The measures come as the war in Iran puts additional pressure on UK public finances, with the FT estimating that the conflict has created a nearly £12 billion fiscal shortfall, potentially halving the chancellor's £23.6 billion headroom against his fiscal rules.

People familiar with the preparations said Healey was prepared to allow the fiscal buffer to absorb the economic shock while ensuring new policy commitments did not add to borrowing.

The FT also reported that banks and gambling companies were preparing for potential tax increases, although Healey had rejected proposals to align capital gains tax rates with income tax and lower the threshold for a new tax on expensive homes.

The FT reported that investors could tolerate a reduction in fiscal headroom to around £14 billion without triggering a sell-off in UK government bonds.

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