Healey can keep taxes steady, says City economist
A leading City analyst argues the Treasury has enough room to avoid new taxes despite Labour’s spending promises.
John Healey will not be forced to raise taxes at the upcoming Budget, according to a note from a senior City economist. The analysis, written by Simon French of Panmure Liberet, suggests the government’s fiscal position in early 2026 will be broadly similar to where it stands today.
Fiscal outlook remains steady
French, a former Treasury official, told traders that the Treasury is "hemmed in" by Labour’s manifesto commitments and existing fiscal rules, but that the energy‑price shock from the Iran conflict has not eroded the fiscal buffer as badly as feared. The Office for Budget Responsibility currently estimates a £22.7bn cushion, and French believes only about £5bn could be lost to migration trends and uncertain labour data.
Immediate remedial action just to retain the policy status quo is, in our view, not likely to be required.
Higher equity prices may offset the impact of rising gilt yields, which are pushing up projected borrowing costs. The note also points out that growth has been "modestly better" than many forecasters expected, reducing pressure on the public finances.
Policy ambitions and tax options
With Andy Burnham now Prime Minister, the government’s agenda includes raising defence spending to three per cent of GDP by 2030, increasing the personal‑income‑tax allowance and boosting social‑care funding, a package the analyst values at roughly £39bn a year. French says only major tax reforms, such as expanding national‑insurance contributions to savings, overhauling inheritance tax, flattening pension tax relief or reforming property taxes, could generate the revenue needed for such ambitions.
He adds that the Budget is likely to be rhetorically bold but financially constrained, meaning the Treasury will have to balance political promises with the reality of the fiscal headroom.
Market participants can therefore expect a Budget that maintains the current tax structure while seeking targeted reforms to fund specific priorities, rather than a sweeping tax hike.
