Bacon butties and grumbling MPs: Inside Healey's first Budget

When John Healey stood up at the Despatch Box to deliver his maiden Budget on Wednesday, he had reason to feel confident. His morning had begun with a bacon sandwich topped with his favourite HP sauce and a positive phone call with Ukrainian President Volodymyr Zelensky, who was buoyed by an extra £10bn package of support to fight the war against Russia. Yet as the dust begins to settle from the Budget, there are signs that Healey’s afterglow could soon fade.

While many Labour MPs were jubilant that there was a surprise cost of living giveaway for millions of people in the so-called “squeezed middle” – a £100 energy bills payment this winter for 20 million homes in council tax bands A to D – some questioned the lack of “ambition” in the package. Despite the feel-good factor from the energy giveaway, the Office for Budget Responsibility (OBR) issued a grim assessment of Britons’ living standards, which will have only improved by a meagre 1 per cent over the decade since the start of the pandemic.

There are also signs that another surprise announcement – that landlords will face a 4 per cent hike in tax on rental income from next year – will backfire. Tax hike on landlords risks hurting renters The OBR has warned that this tax on landlords will be passed on to private renters, who are already feeling squeezed. The fiscal watchdog also cautioned that fewer landlords in the market will give those that remain greater “price-setting power” and flexibility to raise rents.

A Treasury insider had revealed before the Budget that there was one announcement they had been concerned about – prompting speculation that it was the tax hike for landlords. And ministers are likely to face further stinging criticism from their opponents this week over the spiralling benefits bill. The small print of the Budget revealed that the Government will be spending £8bn more on welfare by 2030 than had been forecast back in March, due to higher benefit uprating.

Treasury sources have blamed rising inflation due to the war in Iran for the higher spending. Defence spending row Healey could also come under attack over defence spending. The Conservatives have claimed that the Ministry of Defence (MoD) budget is being cut by £1bn in day-to-day funding over the next two years, compared to what had been pledged in June. MoD sources said this claim was untrue, and that there was a “technical adjustment” equal to the amount departments no longer need to spend on pensions.

The insiders said that critically, this did not affect the MoD’s spending power or Nato targets, and that the department’s budget is rising from £68.4bn this year to £73.9bn the next. Andy Burnham congratulates Chancellor John Healey on delivering his first Budget (Photo: House of Commons/PA) Nevertheless, the Labour chair of the Commons defence committee, Tan Dhesi, criticised the Chancellor’s “lamentable delay” in setting out a precise pathway to spending 3 per cent of GDP on defence by 2030.

“There is a cost to inaction. Investment in our nation’s defence and security cannot be kicked into the long grass. Our adversaries are not bound by fiscal years and spending cycles,” the senior Labour MP said. “We need to urgently rebuild our capabilities now, or we risk leaving ourselves seriously vulnerable in the event of a major conflict.” Healey’s core messages to voters The key messages Healey wanted to land for voters today were offering “breathing space” on the cost of living and getting some of the big changes under way, such as new directions on energy and housing, in order to give people hope for the future.

Offering to put £100 directly into people’s bank accounts this coming January, just as fuel bills are set to rise under the new energy price cap – is being presented as a deliberate decision to help not only those on low incomes who are struggling to pay their energy bills, but a broader constituency of the “squeezed middle”. The payment will help 88 per cent of the “fuel-stressed”, who face punishing energy costs, and will help households in the lowest 30 per cent of incomes.

But Treasury insiders say the payment was also designed to help middle earners who are feeling the pinch. Offering help to only those on benefits and low incomes would have created a “cliff edge” for those just above the threshold – as happened when Reeves cut the winter fuel payment for millions of pensioners. A Treasury source told The i Paper : “Everybody is being squeezed by the cost of living crisis and by rising energy bills. Everyone is aware that the energy price cap will go up quite significantly.”

Labour MPs pleased but want to see more ‘ambition’ Rachael Maskell, the Labour MP who led the backbench rebellion against Reeves’s controversial winter fuel payment cuts, said the £100 payment will “take pressure off people this winter” in “challenging global circumstances”. She told The i Paper : “Alongside this there was some serious re-engineering with the 3 per cent tax on the banks to indicate a shift to redistribution of wealth, while his energy reforms will provide more support as we decouple from reliance on fossil fuels and the global energy market.”

But Maskell wants to see more ambition and “major reforms” from the Chancellor in next year’s Spending Review, adding: “We need to drive more ambition into growth, invest to save across our public services and ensure that people and communities are well supported.” Another Labour backbencher said Healey had delivered a “good speech” and that they were “delighted it’s focused on the cost of living.” “People in my constituency will be very pleased with the extra energy bills support – 93 per cent of houses are band A-D in my patch,” they said.

“[I’m] also happy gambling taxes are helping town centres.” A third praised Healey’s performance as “comfortable and positive”. ‘All a bit meh?’ However, not all Labour MPs were won over. One MP said: “Well, that was all a bit meh?” Another said: “It wasn’t the kind of Budget speech if you were going to call an election tomorrow.” The left-wing Labour MP Jon Trickett said: “Every step, however small, to help with the cost of living is welcome.

But what the country needs is an end to stale Treasury orthodoxy which has done so much damage to the country, especially to the North. This is what the Budget could and should have delivered.” Despite grumbling from some MPs, Healey will sleep well tonight knowing his reputation remains intact in military and defence circles. The Chancellor, who quit as Sir Keir Starmer’s defence secretary over his frustration at inadequate funding settlement, pledged to raise defence spending to 3 per cent of GDP by 2030, as a stepping stone towards Nato’s 3.5 per cent target by 2035.

The move was hailed by senior defence figures. Nato secretary general Mark Rutte welcomed the “clear path” to 3 per cent by 2030, while Lord Robertson, a co-author of the Strategic Defence Review, said Healey was “acting in the national interest”. The increase, from 2.6 per cent today, will be financed through what ministers describe as “creative” investment mechanisms, including state-backed lending to the National Wealth Fund and British Business Bank, and a new defence financing taskforce aimed at attracting private and international capital.