Chancellor Aims to Ease Cost of Living Squeeze in Budget for a 'Difficult Moment'

John Healey has conceded that the UK faces a "difficult moment" but says he will steer the country onto a better path when he delivers his first budget on Wednesday, against a turbulent global economic backdrop.

In a video released ahead of the speech, the chancellor said: "The world's a highly uncertain place. Conflicts abroad are pushing up energy prices, and the cost of living here at home, piling pressure on the families, on businesses and on our public finances." He added that the budget was about getting through this moment, but also about setting Britain on "a better future path".

The budget will be read as a signal of Andy Burnham's intent, yet it is expected to be fairly modest. Healey faces tight public finances, made worse by market turmoil linked to the Iran conflict, and is expected to put off significant decisions on tax and spending until next year. He has promised to ease living costs "responsibly" within Labour's self-imposed fiscal rules, in an effort to reassure markets.

Energy is set to feature heavily. Healey is expected to offer temporary help to poorer families before a steep rise in typical energy bills in January, and to pledge market reforms aimed at lowering bills for all households over the longer term. Burnham recently told MPs he wanted the gas standing charge, a fixed daily levy on all users, scrapped. That would cut bills for low-usage customers, with higher users covering the cost. Industry experts fear investment in hydrogen and carbon capture could take the brunt of spending restraint, a blow to net zero targets.

Other "everyday fixes" are expected, including an end to the carers' allowance cliff edge, which has penalised unpaid carers for exceeding the earnings limit by even a few pence a week. Healey is also expected to cancel January's planned rise in fuel duty. He is likely to raise the minimum wage by nearly 4% while slowing the increase for under-21s, after warnings that young people are being priced out of jobs, a move that has prompted accusations Labour broke a manifesto pledge.

Further measures are expected to shield nearly one million people from income tax and to make the revived Help to Buy scheme more generous. To help pay for the strain on the public finances, Healey is poised to raise taxes on banks, potentially reversing Jeremy Hunt's cuts to the bank surcharge and raising upwards of £2bn a year. Online retailers will be made responsible for collecting tax owed by firms selling through their platforms.

On defence, Healey is expected to confirm more investment in defence industries as a "downpayment" toward spending 3% of national income by 2030, but to leave the timetable until next year's spending review. The budget will also set out a roadmap for devolving more tax revenue to local leaders, with detail on areas such as skills and employment support expected in a white paper in the coming weeks.

The economic picture is mixed. Inflation hit an in-year high of 3.5% last month, and markets now expect the Bank of England to raise rates four times, to 4.75%, over the next 12 months. On Tuesday the government paid above 5% on new five-year bonds, the highest yield since 2008, though City analysts note the rise echoes moves in other major economies. Consumer confidence has fallen at its fastest rate since Brexit, and consultancy BTG reported the highest number of businesses in financial distress in more than two decades, with hospitality and construction hardest hit. Healey nonetheless pointed to resilience, citing higher investment, growing productivity and joint fastest growth in the G7 in the first half of the year.

Opposition parties were critical. The Conservatives' Richard Fuller said a "do-nothing" budget would not solve problems including a spiralling welfare bill and mounting debt. The Liberal Democrats' Daisy Cooper warned against a "steady as she goes" approach, saying families are being squeezed from all sides.