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Is Britain Actually Broke?
7OCT

Healey rules out three big tax rises

3 min read
12:52UTC

John Healey ruled out rises in VAT, income tax and corporation tax on 7 September, then told Labour's conference he would meet the fiscal rules.

← Back to £8.1bn over forecast, and the 30-year at 6%Jump to analysis ↓
EconomicDeveloping
Key takeaway

Healey has ruled out the three biggest taxes, leaving thresholds, spending and welfare as Budget levers.

Chancellor John Healey ruled out rises in VAT, income tax and corporation tax in a speech on 7 September⁠1. At Labour's conference in Liverpool on 28 September he said "we will meet the fiscal rules", called cutting welfare spending "a moral duty" and said "the money New Labour had in the nineties is simply not there now"⁠2. He announced £6bn for three floating docks on the Clyde. Healey, appointed by Prime Minister Andy Burnham on 20 July, presents his first Budget alongside the OBR forecast on 28 October.

The broker Saxo estimated that the roughly £24bn of headroom his predecessor left, the margin by which the government expected to meet its borrowing rules, has at least halved⁠3. The Resolution Foundation, a centre-left think tank, said on 8 September that about £1 in every £12 of public spending now goes on debt interest⁠4. In July it had put the government's headroom against its fiscal rules at about £10bn. The Institute for Government said on 7 September that the OBR forecast had likely deteriorated since March⁠5.

The three taxes that raise most are off the table, borrowing is £8.1bn over plan after five months, and the £10bn headroom estimate predates the late-September rise in gilt yields. On Lowdown's reading, that leaves tax thresholds, smaller taxes, spending or welfare as the levers for the Budget.

Deep Analysis

In plain English

The Chancellor is the government's finance minister. John Healey must publish a Budget on 28 October. The Budget sets taxes and spending. The government has set itself fiscal rules, limits on borrowing and debt. Economists call the gap between its plans and those limits headroom. Think tanks and brokers estimate that gap has shrunk. Healey has said he will not raise VAT, income tax or corporation tax, the three taxes that bring in most money. That leaves other choices: freezing tax thresholds, raising smaller taxes, cutting spending or cutting welfare.

Deep Analysis
Root Causes

The fiscal rules constrain the Chancellor, and headroom is the margin between the forecast and the rule. A small change in the OBR's yield and growth assumptions moves it by billions, so a pledge about taxes made before the forecast leaves little room for error.

Debt interest compounds the squeeze. With £1 in every £12 of spending going on interest, a larger share of each pound is committed before any choices on schools or health.

Three taxes, VAT, income tax and corporation tax, raise most of the revenue. Ruling them out narrows the remaining options to thresholds, smaller taxes and spending, because the other levers raise less per point of rate.

What could happen next?
  • Consequence

    With three taxes ruled out, the 28 October Budget leaves thresholds, smaller taxes, spending and welfare as the levers on Lowdown's reading.

  • Risk

    The £10bn headroom estimate predates the late-September rise in yields, so the OBR's number may print lower.

Sources:XTB·Sharecast·Resolution Foundation
Mentions:John Healey →HM Treasury →Resolution Foundation →Institute for Government →Labour Party →Office for Budget Responsibility →Andy Burnham →Saxo Bank →Gordon Brown →Liverpool →Autumn Budget 2026 →Denis Healey →VAT →
First Reported In

Update #4 · £8.1bn over forecast, and the 30-year at 6%

XTB· 7 Oct 2026
Read original →
Causes and effects
Caused by
ONS puts borrowing £8.1bn over OBR path
The £8.1bn overshoot is the arithmetic Healey's tax pledges must meet before the Budget.
Occurred 22 Sept 2026
Read story →
This Event
Healey rules out three big tax rises
With the three largest taxes ruled out, Lowdown reads the Budget's remaining levers as thresholds, smaller taxes, spending and welfare.
Different Perspectives
Conservative Party
Conservative Party
Leader Kemi Badenoch said Labour will run out of money and proposed lifting defence to 3% of GDP, paid for from welfare. Shadow work and pensions secretary Helen Whately put those savings at £23bn, "just the start".
Reform UK
Reform UK
Treasury spokesman Robert Jenrick pledged £80bn a year of spending cuts by the end of the next parliament and claimed £30bn a year of interest savings. The Spectator judged that the sums still do not fully add up.
Centre for Policy Studies
Centre for Policy Studies
The right-of-centre think tank argued on 4 October that Britain is not a low-tax country once workplace pensions and student-loan repayments are counted. Its comparison rests on 2019 data.
Institute of Economic Affairs
Institute of Economic Affairs
The free-market think tank argued on 28 September that alcohol, tobacco and landfill duties raised £5.2bn less than the OBR projected. That comparison is separate from the five-month borrowing overshoot.
Resolution Foundation
Resolution Foundation
The centre-left think tank said on 8 September that about £1 in every £12 of public spending now goes on debt interest. In July it put headroom against the fiscal rules at about £10bn.
Audit Scotland
Audit Scotland
It reported on 17 September that three Scottish budgets planned ScotWind drawdowns and drew nothing each time. It warned that using one-off receipts to balance annual budgets can weaken spending control.