John Healey faces bond market test

John Healey may have been U.K. finance minister, or chancellor, for just 100 days, but he has already achieved something his predecessor, Rachel Reeves, did not.

The build-up to her annual budgets was scarred by weeks of speculation about which taxes she would raise and, even though some of those increases never materialized, the damage to business and investor confidence was almost as great as if they had been imposed.

By contrast, drawing on his experience as defense secretary, Healey has imposed tight security over preparation of his inaugural budget on Wednesday, with access to documents allowed on a strict “need to know” basis.

The build-up has seen much less rumor and speculation. Reeves indicated before last year’s budget that she might break her party’s manifesto commitment not to raise income tax. With Healey, such kite-flying has been non-existent.

So far, so good: but it will not be plain sailing from here.

Reeves gave herself last year a headroom — the buffer available before the government would breach its fiscal rules — of £24 billion ($32 billion). But higher government borrowing costs have eroded this to as little as £10 billion.

The fiscal rules require day-to-day government spending to be funded by tax revenues and debt to be falling as a share of gross domestic product.

At the same time, Prime Minister Andy Burnham has made plenty of spending commitments. The latest, on Monday, was a £432-million plan to tackle homelessness and people sleeping on the streets.

Other likely giveaways include targeted support for poorer households with energy bills and a higher tax-free allowance for low-income pensioners.

Amanda Tickel, tax and trade policy leader at business services firm Deloitte, said Healey must explain how he will pay for these and other modest tax cuts already signaled, including lower business rates — a tax on commercial properties — for pubs and small retailers.

“The biggest expectation I’ve got in terms of tax cuts will be the extension of the fuel duty relief,” she told CNBC.

“That should or could cost over £2 billion, so that will need funding as well.”

The biggest challenge by far will be defense spending.

Healey must set out how the government plans to increase spending on defense to 3% of GDP by the end of the decade, the issue over which he resigned from Keir Starmer’s…