The Chancellor is expected to sidestep welfare reform in today’s Budget while committing billions of pounds more to benefit payments.
John Healey is not expected to rein in rapidly rising welfare costs, despite mounting concern over the state of the public finances.
Instead, the tax burden could rise to a record high as the Government seeks to fund increased support for benefit recipients.
Labour sources told Our News Outlet that Mr Healey has allocated £5.5billion to finance a 3.5 per cent rise in benefits for 10 million people.
He is also expected to set aside at least a further £1billion to help cover winter energy bills for people receiving benefits and households on low incomes.
Speaking before the Budget last night, the Chancellor said his priority was helping the global economy and households “get through this difficult moment”.
He said the package would contain measures to “give households breathing space from some everyday costs”, while promising longer-term action to reduce energy bills in the years ahead.
However, immediate help for people outside the benefits system is expected to be limited, with one measure likely to be a freeze on NHS prescription charges at £9.90.
Chancellor John Healey said his priority was helping the global economy “get through this difficult moment”
Mr Healey has allocated £5.5billion to fund a 3.5 per cent increase in benefits for 10 million people. Pictured: People queuing outside a job centre in Cambridge
The Chancellor was accused of insulting families yesterday after the Treasury said the measures would include tariff cuts worth only 40p a week from the average grocery bill, including a reduction in the price of gherkins.
Mr Healey said last night that he would continue to follow the “tight fiscal rules” established by his predecessor, Rachel Reeves.
But sources indicated that he would not announce welfare reforms, even as official forecasts show sickness benefit spending rising from £83billion last year to £109billion by the end of the decade.
Opposition MPs warned that the Government could not afford to postpone welfare reform again. Shadow treasury minister Richard Fuller said: “Britain’s public finances are on a cliff edge.
“A ‘do nothing’ Budget will not tackle the problems confronting the country: a spiralling welfare bill, an increasingly heavy tax burden, rising debt and growing threats around the world.”
“When the Budget is published, we must ask: Is it fair to take more and more money from hard-pressed working families simply to spend it on additional benefits?
“Will further tax increases and additional borrowing leave people better off? Labour is running scared of the difficult decisions needed to put the country back on track.”
Former work and pensions secretary Sir Mel Stride said: “The Chancellor must confront the welfare budget. Britain now spends about half a billion pounds each day on working-age welfare.
“Sickness benefits are the fastest-growing part of that bill. Most people want to do the right thing, but the system is creating all the wrong incentives. The Chancellor must act.”
Andy Haldane, a former economic adviser to the Prime Minister, also called on the Chancellor to make a “down payment” on welfare reform in the Budget.
The former Bank of England chief economist said that cutting welfare now could bring down borrowing costs by showing the markets Labour is serious about reform.
And he warned that Andy Burnham’s ability to take on his own MPs over welfare is likely to get weaker the longer he delays action.
‘Andy Burnham is riding as high in the polls as he is ever likely to, he has as much political capital in the bank as he probably ever will have. Now is the time to make these choices.
‘Making them in the second half of next year when the economy is probably weaker, the geopolitical storms are probably lesser, when his popularity is probably lesser, would be a harder choice.’
Ministers have said they cannot act on welfare reform until the publication of major reviews on youth unemployment and disability benefits in the coming months.
But Whitehall sources said the reviews had been deliberately timed to report after the Budget to avoid Mr Healey having to take immediate action.
Government sources said Mr Healey is planning a low-key ‘steady as she goes’ Budget after Ms Reeves hiked taxes by £66billion in Labour’s first two years.
However, he is expected to levy a number of smaller taxes, including a new charge on bank profits, to help fill a black hole in the public finances caused by the Iran war.
The measures risk adding to pressure on an economy already heading for the highest tax burden since the Second World War.
Mr Healey will shield pensioners on the state pension from having to pay income tax for the first time.
But he will continue the long-running stealth tax raid on workers by leaving frozen tax thresholds unchanged.
Figures from the House of Commons Library suggest an extra 580,000 people will be dragged into paying the higher rate of income tax next year, taking the total to 7.7million.
But Mr Healey will find billions of pounds to raise benefits. Most major benefits, including Universal Credit and Personal Independence Payment, will rise by 3.5 per cent, in line with Consumer Price Index inflation from September.
Analysts said the rise would cost the taxpayer around £5.5billion – roughly £2.2billion more than official forecasts predicted in March.
Difficult decisions on defence spending, welfare and departmental budgets will be kicked down the road, fuelling speculation that the Budget could be a springboard for a snap election in the spring.
In a video message last night, the Chancellor said the Budget was ‘designed to give households breathing space from some of the everyday costs, provide targeted support for businesses and self-employed people and to start the long-term action needed to get energy costs down for good.’
Treasury officials were tight-lipped last night about Mr Healey’s plans for energy bills. He is expected to offer a modest package of support for those on benefits and low incomes this winter.
But he will also outline reforms designed to curb bills in the long term. This could include ‘decoupling’ electricity and gas prices to reduce the impact of fossil fuel costs.
Mr Healey is also expected to outline modest increases in defence spending, including filling a £5billion hole in the Defence Investment Plan by cutting Net Zero and road projects.
But he is not expected to commit to raising defence spending to three per cent of GDP by 2030, despite resigning as defence secretary over the issue earlier this year.
