UK chancellor Healey retreats from welfare cuts as the fiscal gap threatens a hard spending review
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Chancellor John Healey now says welfare will not be cut this parliament, after earlier suggesting reductions, while the Institute for Fiscal Studies warns that the budget leaves a £28 billion annual shortfall that could force painful choices, higher taxes, and a tougher squeeze on spending.
John Healey said the welfare bill will not be part of the upcoming spending review, emphasizing that he wants reform rather than an immediate reduction. Earlier in the week he had suggested a cut to the benefits bill, but Treasury officials clarified that no timetable had been set, leaving the impression of a government still searching for discipline on spending.
The Institute for Fiscal Studies warned that the budget leaves a £28 billion annual shortfall that must be covered to meet the government's defence spending target and to offset inflationary pressures. In plain terms, the numbers show how fragile the fiscal position is and how quickly Labour’s plans could run into trouble if costs rise further.
"Public service spending plans look extremely tight. They don’t look to me like plans that this government would want to deliver," IFS director Helen Miller said, adding that the shortfall could lead to "another season of damaging speculation about tax rises."
The Office for Budget Responsibility projects total welfare spending to rise from £334 billion last year to £431 billion by 2030, with pensions and sickness/disability benefits accounting for most of the increase. That trajectory underlines the scale of the welfare burden and the pressure it places on taxpayers and the wider economy.
Healey highlighted measures to ease the cost of living, including a £100 winter payment for most households, and noted that the end of the Iran and Ukraine wars would be the biggest boost to the UK economy. When asked about the potential growth benefits of re-joining the EU or the single market, he said, "Brexit has certainly hit our level of growth and trade, but we had a referendum. We’re out of the European Union. The challenge for me now is how do we make the best of an economy which this year has proved remarkably resilient." His answer was a reminder that the government must work with the democratic reality of Brexit rather than reopening old arguments.
Critics described the budget as a "scattergun" approach. The Resolution Foundation said the energy-support measures were not sufficiently targeted. The complaint reflects a familiar left-leaning demand for more state intervention, even as the government tries to avoid overpromising.
"Cost of living support is being spread far too thinly and will leave even those families receiving help facing higher energy bills than they did during the last energy price shock," Ruth Curtice, chief executive of the Resolution Foundation, said.
The Trades Union Congress welcomed the bank surcharge increase but called for a higher levy if banks continue to earn windfall profits. The unions’ instinct is always to demand more from successful businesses, even when the wider economy needs stability and investment.
"It was right to tax banks to help people with their energy bills, but I think banks could have been asked to pay a fairer share," TUC general secretary Paul Nowak said.
The IFS noted that the £15 billion fiscal buffer left by Healey could be eroded by higher energy costs or other adverse developments, making the budget vulnerable to future shocks and highlighting how little protection remains if economic conditions worsen.