The challenge
On 28 October, John Healey will announce the autumn budget to parliament. As in all years, the chancellor has to strike a balance between the following:
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Raising the money needed to fund the services that voters demand.
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Keeping taxes at levels that are acceptable to voters.
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Persuading the government’s creditors in the bond markets that it will continue to be able to pay its debts.
The game
In our game you get to try your hand at designing a successful budget. Can you keep backbenchers happy without upsetting the bond markets? And can you do it all while keeping the books balanced?
Just like the real chancellor, you begin in the red.
At the spring statement, Healey’s immediate predecessor, Rachel Reeves, had left herself £23.6bn of “headroom” against the fiscal rules, which require day-to-day spending to be matched by receipts by the end of this parliament.
However, the buffer is widely expected to have been slashed by a surge in debt interest costs, as the war in the Middle East triggers a global inflation shock that is rattling the bond markets.
Taken together, the Resolution Foundation thinktank predicts the headroom against the government’s fiscal target will be halved, to about £12bn.
Healey is thought to be willing to allow the buffer to take a hit. However, jittery bond investors are looking for him to retain a degree of headroom to guard against further negative shocks, with at least £14bn thought to be needed to avoid provoking a bond market reaction.
The chancellor is also under pressure to find space in the public finances for three things: a cost of living support package; a boost in defence spending; and financing Andy Burnham’s long-term priority to spread “good growth” to every postcode.
Tips
Solving the above is all part of your task. You’ll see the headroom grow or shrink, or – most worrying – become negative in response to your policy decision. But keep an eye on the alerts on how the markets – which may not be convinced – and the opinion polls are responding as you go. Good luck.
If you get stuck tap or click for Treasury briefings – chart icon – and wry notes from Burnham – note icon – for guidance.
Sources and notes: the estimates of income from each of the measures and for the current government balance come from a variety of economists and thinktanks and the government’s own assumptions. The core fiscal impacts are from HM Revenue and Customs, and the estimates for other measures are sourced in the descriptions. These estimates are often based on those economists’ own assumptions about future growth, inflation, collection rates and other variables. So this game should be seen as illustrative of the relative sizes of the impacts of measures. Do not buy or sell gilts on the basis of this game, in case you were thinking of it.
