Chancellor John Healey is reportedly considering accepting a smaller fiscal buffer in the upcoming Autumn Budget, according to reports in the Financial Times. This decision, currently under discussion between the Treasury and No 10, could lead to a reduction in planned tax increases and spending cuts.
The Office for Budget Responsibility (OBR) had previously estimated in March that the government would achieve its key fiscal rule – covering day-to-day spending with revenues by the 2029/30 financial year – with a buffer of £23.6bn.
Some gilt investors suggest that the recent surge in yields, attributed to the war in Iran, makes it unrealistic for Healey to rebuild the headroom to that level. However, other investors reportedly believe a buffer of less than £20bn could be problematic, advocating for adherence to the OBR's original prediction.
Government figures are reportedly preparing to argue that maintaining the March buffer is unnecessary due to sharp rises in borrowing and energy costs. Final decisions on the headroom are expected closer to the 28 October Budget.