Chancellor John Healey is not required to raise taxes to implement "immediate remedial action" for the UK economy at the Budget, according to Simon French, an economist at Panmure Liberum and former Treasury official. French indicated that the government's fiscal outlook remains "broadly in the same position" as it was at the beginning of 2026.
In a note to traders, French suggested that Healey is constrained by Labour's manifesto commitments and existing fiscal rules. He also noted that the energy price shock from the Iran war is unlikely to have significantly impacted the size of the fiscal headroom.
French argued that several factors contribute to a less pessimistic forecast than previously anticipated. He stated that growth has been "modestly better" than economists expected, and that net migration trends and unreliable labour market data could reduce the fiscal buffer by approximately £5bn from its current £22.7bn, as set by the Office for Budget Responsibility (OBR).
However, French added that Healey is still likely to pursue significant changes, as the upcoming Budget will be the first under Andy Burnham's premiership. Panmure Liberum estimates that publicly stated ambitions, such as increasing defence spending to three per cent of GDP by 2030, raising the income tax personal allowance, and boosting social care funding, could cost an additional £39bn annually.