UK chancellor to outline budget amid cost-of-living pressures and defence spending plans

John Healey is set to deliver his first budget on Wednesday as UK households and businesses face rising costs linked to the war in the Middle East. The chancellor aims to introduce "breathing space" measures, including more than £1 billion for energy-price relief and an expanded discount on certain benefits, while also considering a cut to fuel duty.

Healey inherits a fiscal headroom that was estimated at £23.6 billion after the spring statement, but analysts say the buffer may have fallen to around £12 billion because of higher debt-interest costs. The Office for Budget Responsibility will assess the impact of inflation, pay growth, employment and productivity on public finances, and investors are expected to look for sufficient remaining headroom to avoid market volatility.

In line with Prime Minister Andy Burnham’s pledge for "good growth in every postcode," the budget is expected to devolve more fiscal powers to local leaders, allowing English authorities to retain a share of income tax and providing a £1.5 billion borrowing facility for directly elected mayors. The move is intended to address regional inequality and stimulate broader economic performance.

Youth unemployment will also feature prominently. With the number of young people not in education, employment or training approaching one million, Healey is likely to consider welfare reforms and targeted spending to support local initiatives that help young people enter work or training.

Defence spending is projected to rise, with the government seeking an additional £1 billion a year to meet a target of 2.7 % of GDP by 2029 and a longer-term ambition of 3 % by 2030, which would require roughly £11 billion more than current levels.

Finally, the budget may highlight the economic impact of reduced net migration since Brexit, as lower migration is expected to cut tax receipts by an estimated £4.7 billion by 2029-30, according to the Resolution Foundation.