Healey tells ministers to prepare to make cuts to fund Burnham’s new pledges

Chancellor John Healey has told the Cabinet they must make be prepared to make cuts to finance Andy Burnham’s new spending pledges.

Mr Healey on Friday announced the date of his first budget as Chancellor as October 28, and promised the plans would be “built on fiscal discipline”.

The start of Mr Burnham’s premiership has seen a succession of announcements likely to require additional spending.

These include cost-of-living measures such as a cut in VAT on energy bills and reduced business rates for pubs, along with plans for radical devolution in England and an expansion of technical training in schools.

Ministers have been told there is no new money to pay for these moves in a joint letter from the Chancellor and the Prime Minister.

“We’ve written to the Cabinet to say that if we’re serious about new priorities as a second-stage Labour Government we have to be serious about — and they have to be serious about — reprioritisation of their plans, their budgets,” Mr Healey told The Times.

“They need to pay for the new things they want to do this year and next year within the budgets they’ve already got.”

In the letter, he wrote that departments need to be “disciplined on spending, looking at the tough choices and being ready to shift funding away from unproductive or legacy programmes that no longer reflect this administration’s priorities”.

Mr Healey will face significant challenges as he finds more money for Mr Burnham’s devolution priorities and increased defence spending amid warnings the Iran war will further squeeze the public finances.

He will also have to set out how the Government will fund £5 billion of defence spending announced in May’s Defence Investment Plan (Dip) without details of how it would be paid for.

He will come under pressure to increase that funding further, having resigned as defence secretary ahead of publication of the Dip, arguing it did not provide enough money for the armed forces.

He would not commit to raising defence spending to 3% of GDP by 2030, but suggested it could form part of next year’s spending review.

“At the spending review, we will set out a clear path to meeting our 3.5% Nato commitment in 2035 and we will set a target date on that path for 3%,” he told The Times.

Earlier, he said the budget would “meet our fiscal rules” and “give businesses and families some of the stability they need to plan for the future”.

Looking back at Mr Burnham’s first two weeks as Prime Minister, Mr Healey said the new Government was “working fast to restore hope and back Britain’s communities” and had “begun to kickstart growth in every postcode”.

Experts have warned Mr Healey he will need to raise taxes or cut spending elsewhere as pressure on the public finances has left no room for extra borrowing.

The National Institute of Economic and Social Research (Niesr) said on Wednesday the conflict in Iran would mean more persistent inflation and higher interest rates.

Stephen Millard, Niesr’s deputy director for macroeconomics, suggested Mr Healey should look at the welfare bill or the pensions triple lock as areas for potential cuts.

He also suggested Mr Healey should consider raising income tax, which would break Labour’s 2024 manifesto pledge not to raise that levy, national insurance or VAT.

That pledge, along with the fiscal rules set by former chancellor Rachel Reeves on borrowing, are likely to constrain Mr Healey’s room for manoeuvre.

In a letter to Commons Treasury Committee chairwoman Dame Meg Hillier, the Chancellor stressed his commitment to fiscal discipline.

He said: “Fiscal credibility is the bedrock of economic stability and national security.

“That is why we will abide by the fiscal rules, ensuring we retain a buffer to protect us against uncertainty and the impact of instability in the Middle East.”

In her last budget, Ms Reeves left a £22 billion buffer against her fiscal rules, but persistent inflation due to the Iran war could have eaten away at this.

Shadow chancellor Sir Mel Stride said the announcement of the budget date meant “89 more days of unfunded spending commitments and damaging tax speculation until we get some details”, and “89 more days for Brits to wait before they know how much their taxes are going to go up to fund Burnham’s spending addiction”.

He added: “Only the Conservatives have a plan to cut spending by £50 billion starting with the welfare bill, so we can cut taxes, lower your bills and back business to deliver a stronger economy and a stronger country.”