John Healey risks a fiscal reckoning – even Rachel Reeves didn’t go this far (Image: Getty)
Former chancellor Rachel Reeves knows how he feels. Both of her Budgets walked a similar knife edge, and both ended in chaos and controversy. Reeves bequeathed an even bigger mess than the one she inherited from the Tories. Now Healey could be forced to do the one thing even she didn’t, and make everything even worse.
In a bid to boost her credibility, Reeves famously set herself two rigid fiscal rules. The first was that day-to-day public spending must be covered by revenues. The second was that public sector debt must start falling as a share of the economy.
That’s why, when Reeves broke down in tears in Parliament, the bond market panicked and gilt yields shot up. Investors feared that if she went, her rules would vanish too, and the next Labour chancellor would go to town. Eventually, both Keir Starmer and Reeves did fall, but her fiscal rules remained, like twin pillars of a collapsed desert temple. Healey inherited those dusty relics, and says he’ll stand by them too.
Many in Labour are furious, because they’d rather he told the bond market where to shove it and went on a spree. But Healey’s hopes of abiding by those rules are slim because every time boss Andy Burnham opens his mouth, a new spending pledge comes out.
Even when Burnham got tough by pledging to scrap the state pension triple lock, he instantly spent the savings (and more) on his plan for a National Care Service. With Burnham at the helm, no chancellor alive could balance the books.
The Iran war isn’t helping, as it drives up the oil price, inflation, interest rates and gilt yields. That makes servicing our £3trillion national debt even more expensive. Reeves left Healey with around £24billion of fiscal headroom. Some estimates now put it as low as £7billion.
Goldman Sachs and JPMorgan have warned it could soon be wiped out altogether. Even Reeves didn’t drive the UK economy over that particular cliff. If Healey does it could have disastrous consequences for all of us.
Healey may need to raise anything up to £12billion or £20billion in his Budget. One way of doing this is to cut spending. But that would destroy Andy Burnham’s honeymoon in a heartbeat. When Starmer tried to shave a modest £5billion off welfare, backbench MPs forced a humiliating U-turn.
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The other option is to hike taxes, something Labour governments are much better at doing. But that won’t be easy, because Healey can’t hike the big ones like income tax, national insurance or VAT due to Labour’s manifesto pledges, and businesses can’t take much more strain.
He has another option. Do nothing. Avoid making any big decisions in the Budget and hope something turns up. The risk is that this makes him look weak, and the bond market panics.
Healey has one final option. Fiddle those fiscal rules. Plenty on the left are urging him to do that. Those rules are political targets, not laws of nature. Healey could tweak definitions, extend timelines or some other sleight of hand.
There are two problems with this. First, it would make him look worse than Reeves, and no politician wants that. Second, it might panic bond investors and trigger a Liz Truss-style post-Budget meltdown. Healey won’t fancy that either.
Reeves has just been voted the worst of the past five chancellors, according to an AJ Bell survey. If Healey breaks her fiscal rules, he could inherit that unwanted title. So what will he do? We’ll find out on October 28. It’s going to be a close run thing.
John Healey on the Brink of Budget Disaster – Even Rachel Reeves Didn’t Cross This Line
Britain’s political debate over public spending, taxation and national priorities has entered increasingly sensitive territory, with every major government decision facing scrutiny from voters who are already worried about the cost of living. Against this backdrop, Defence Secretary John Healey could find himself at the centre of a difficult political storm if decisions affecting the defence budget become entangled with wider arguments over the government’s financial strategy.
The headline warning that Healey is on the brink of a Budget disaster reflects a broader concern: when public money is limited, decisions about where it should be spent can quickly become political flashpoints. Defence is particularly sensitive because it involves national security, military readiness and Britain’s responsibilities to its allies. Any suggestion that these priorities are being compromised can generate a reaction that reaches far beyond Westminster.
Rachel Reeves, as Chancellor, faces a different but closely connected challenge. Her task is to balance public services, economic stability, taxation and borrowing while convincing the public that the government is using taxpayers’ money responsibly. Healey’s responsibilities are more focused on defence, but the decisions he supports inevitably depend on the resources made available through the wider Budget process.
The question is not simply whether the government can afford its ambitions. It is whether ministers can explain their choices clearly enough to maintain public confidence.
Why the Defence Budget Is a Political Minefield
Defence spending is rarely an easy area for any government to manage. Military equipment is expensive, personnel require long-term investment, and modern threats can change faster than procurement programmes can be completed. A government may announce ambitious plans, but turning those promises into operational capability requires consistent funding over many years.
This creates a difficult dilemma. Ministers must respond to immediate pressures while preparing for future threats. They must also decide how to divide resources between personnel, equipment, training, infrastructure and emerging technologies such as cyber defence and autonomous systems.
If spending falls short of military requirements, critics may argue that the country is becoming less secure. If spending rises sharply, opponents may ask which other priorities will receive less money or whether additional taxation and borrowing will be necessary.
Healey therefore operates in a politically exposed position. He must demonstrate that defence policy is credible while working within the financial limits established by the government. A disagreement between military ambitions and Treasury constraints could quickly become a test of his political judgement.
The danger is especially pronounced when public expectations are high. Voters want to know that the armed forces have the equipment and personnel they need, while also expecting the government to address pressure on household budgets, healthcare, education and other public services. Ministers cannot assume that the public will automatically accept every additional spending commitment simply because it is described as essential.
Rachel Reeves and the Treasury’s Difficult Choices
The Chancellor’s position illustrates why disputes over defence funding can become so complicated. A Budget is not merely an accounting exercise. It is a statement of political priorities, showing which commitments the government is prepared to protect and where it is willing to impose limits.
Reeves must consider economic growth, the public finances, investment and the demands placed on public services. If ministers seek additional resources for defence, the Treasury must determine how those resources can be provided without undermining other commitments or weakening confidence in the government’s fiscal plans.
There are several possible approaches. The government could redirect money from other programmes, raise additional revenue, borrow within its fiscal framework or increase spending gradually over a longer period. Each option carries consequences, and none can be evaluated without examining the wider economic circumstances.
Redirecting money may create opposition from departments or groups that lose funding. Tax increases can provoke public resistance, especially when families are already struggling with everyday expenses. Borrowing can support investment, but it also brings questions about debt costs and the sustainability of public finances.
That is why the suggestion that Healey could face a Budget disaster should be treated as a political warning rather than an established outcome. The actual consequences depend on the government’s decisions, the resources allocated to defence and whether its plans can be delivered in practice.
Nevertheless, the tension is real in principle. Defence ministers may argue that national security requires greater investment, while the Treasury must assess those demands alongside every other claim on public money. If the two sides cannot present a convincing common position, the resulting disagreement can damage confidence in the government’s overall strategy.