The Treasury has scheduled John Healey’s first Budget for 28 October. That’s the one week of the year when Britons expect frightening figures at the door demanding something for nothing. Healey must hope the timing is a coincidence. The bond market clearly doesn’t think so: the 30-year gilt yield skimmed 6.04 per cent, the first time it has hit six per cent since 1998. That was the year of the Spice Girls, Nokia bricks and, until recently, the last time Britain paid this much to borrow.
Superstitious Westminster has noticed an unfortunate symmetry. Half a century ago, a chancellor named Healey took Britain cap in hand to the IMF. Today’s market jokers note that another Healey is preparing a Budget, and some argue the fiscal outlook is grimmer than the one Denis faced in 1976. John is no relation, but try telling that to a gilt trader at 7am.
The numbers are the stuff of horror films. The fiscal buffer stood at £23.6bn in March. Pantheon Macroeconomics now reckons it is nearer £13bn, and says the Chancellor needs £11bn a year in tax rises or cuts just to rebuild the cushion. The FT’s pundits think it could be as little as £5–10bn. Every quarter-point rise in gilt yields adds about £2.5bn a year to debt interest. Mr Healey is essentially trying to fill a bath with the plug out while the bond market adds more plugholes.
In fairness, most of this isn’t his fault. One analyst points out that very little so far is down to Burnham or Healey: this is a global bond rout fuelled by the Iran war. The awkward bit is that UK bonds were among the worst performers in the sell-off, with yields rising faster than in the US, Japan and Germany. When everyone’s house is on fire, it is still not a great look when yours is the one with the brightest flames.
Into this inferno strides Andy Burnham with a pumpkin-sized idea. He told Labour’s conference that the state pension triple lock will be replaced by a cheaper double lock from April 2030, to help fund a National Care Service. The courage is breathtaking. He has taken on the demographic that owns the houses, turns out at every election and has the free time to write letters to local papers in green ink.
The timing is pure pantomime. The triple lock stays until 2030, so pensioners get a rise of at least 3.9 per cent next April. That will push the state pension above the personal tax threshold for the first time. The pension will be so generous that HMRC will have to take some of it back. Meanwhile, Burnham has admitted a “shortfall” in the plans to pay for the care service the change is supposed to fund. A reform that starts in four years, for a service whose sums don’t add up yet, is trick-or-treating in reverse: knock on the door, hand over an IOU, run away.
Homeowners are not laughing either. Investors are pricing in a Bank of England rate rise in November, another in February and a third by June. Anyone remortgaging this winter will find the bond market has carved something on their doorstep too.
Inevitably, the dread word “Truss” is back. One wealth boss warned that the UK could be “Truss’d” as yields surge. Calmer heads note that 2022’s crisis came from a seizure in pension funds’ LDI strategies, not simply high yields. The lettuce stays in the fridge, for now.
So where will Healey find the money? Rumour has it he is summoning the bosses of Britain’s biggest banks to a pre-Budget summit. Inviting bankers to a meeting ahead of an announcement about taxes is the City equivalent of the vet asking your dog to hop in the car after breaking its leg.
To be balanced, Burnham’s defenders have a case. The triple lock costs £10bn a year, and the FT’s own editorial board has argued it is time to scrap it, so ditching it is hardly radical. Burnham, meanwhile, is the only politician tested with a positive net approval rating, at +14. Critics counter that pensioners are about to face another surge in household energy prices, and that promising cuts in 2030 does nothing to calm markets in 2026.
The Budget is two weeks away. Either Healey pulls a rabbit out of a hat, or the bond market pulls the hat off Healey. Halloween follows three days later, and the scariest costume in Britain this year will be a man in a sensible suit holding a red box.
The Letts Journal is a reader-supported publication and not a pollster. To receive new posts and support our work, consider becoming a free or paid subscriber. Both get the same content so you can keep it cheap.
Keep up to date with The Letts Journal’s latest news stories and posts at our website and on twitter.