By Professor David Bailey
28th October 2026

Healey’s first Budget:

a little breathing space, but where’s the growth going to come from?

The Chancellor has offered households some relief, businesses targeted support and regional leaders greater powers. But Britain needs more than a series of sticking plasters. The real test is whether this Budget can deliver the investment, productivity and industrial renewal needed to turn a low-growth economy around.

 

John Healey’s first Budget as Chancellor, and the first of Andy Burnham’s premiership, was always going to be a difficult balancing act. The government wants to demonstrate that Labour has changed direction, offer households some respite from the cost of living crisis, support businesses and invest in the country’s future. At the same time, it must reassure financial markets that it will not lose control of the public finances.

The result is a Budget that offers some welcome measures but falls short of the economic transformation Britain needs. There is help with energy bills, support for small businesses, additional backing for investment and a renewed commitment to regional devolution. Yet the fundamental problem remains: Britain has struggled to generate sustained growth in productivity, investment and living standards. The question is whether today’s measures will make a meaningful difference.

 

Help with the cost of living, but no quick fix

The most immediate announcements concern household finances. The abolition of standing charges on gas bills, an extension of electricity VAT relief and a £100 winter energy payment for households in council tax bands A to D will provide some welcome support. The continued freeze in fuel duty will also help motorists, while the removal of import tariffs on more than 100 products should modestly reduce costs for consumers and businesses.

These measures do matter. For households struggling with mortgage payments, energy bills and supermarket prices, even relatively small savings can make a difference. Extending parental pay to eligible self-employed fathers and reforming the carer’s allowance earnings threshold are also sensible changes that address longstanding unfairness.

But there is a distinction between helping people manage higher living costs and addressing why those costs remain so difficult to bear.

The energy measures are particularly important because Britain’s exposure to volatile international energy markets continues to undermine household finances and industrial competitiveness. The government’s commitment to cheaper energy, alongside its net-zero ambitions, is welcome. However, removing charges from bills and offering temporary payments cannot substitute for a coherent strategy to provide reliable, affordable energy over the long term.

Britain needs to accelerate investment in electricity generation, networks, storage and grid connections while ensuring that energy-intensive industries can compete internationally. Without that, manufacturers will continue to face costs that make investment elsewhere more attractive.

 

Fiscal discipline is not an economic strategy

Healey has placed considerable emphasis on fiscal responsibility. That is understandable. Higher borrowing costs, increased debt-interest payments and weak economic growth have sharply constrained the Chancellor’s room for manoeuvre.

The latest forecasts underline the problem. Growth is expected to reach only 1.2% in 2026 and slow to 1% in 2027. The additional £14 billion in debt-interest costs illustrates how international instability can rapidly erode the government’s financial flexibility.

Maintaining fiscal credibility is of course important but should not become an end in itself. The purpose of sound public finances is to create the conditions for a stronger economy, better public services and rising living standards. A government that balances its books while presiding over persistently weak productivity and inadequate investment has not solved the country’s underlying problems.

The Chancellor must therefore be judged on more than his ability to meet fiscal rules. Will the economy become more productive? Will private investment increase? Will wages rise sustainably? Will public services improve? And will the benefits of growth extend beyond London and the South East?

These are the tests that matter to voters. If the government cannot deliver progress on them, fiscal prudence will provide little political protection.

 

Business needs investment, not just less paperwork

There are some positive measures for business. Raising the small business rates relief threshold will help thousands of firms, while efforts to reduce unnecessary administrative burdens could save companies significant sums. The additional support for the National Wealth Fund and British Business Bank, together with measures intended to encourage investment in technology, defence and clean energy, could also prove valuable.

But there is a danger that the government places too much emphasis on regulatory simplification and too little on the structural conditions that determine whether businesses invest and expand.

Companies need predictable demand, affordable energy, access to finance, skilled workers, effective transport infrastructure and confidence that government policy will remain stable. Cutting paperwork helps, but it cannot compensate for weaknesses in these areas.

The proposed support for Rolls-Royce’s next generation of aircraft engines is a useful example of the kind of intervention that can strengthen advanced manufacturing. The challenge is to build a much broader approach that connects research, skills, procurement, finance and domestic supply chains.

Britain has considerable strengths in aerospace, automotive manufacturing, pharmaceuticals, advanced engineering and other high-value industries. Yet these strengths cannot be taken for granted. International competitors are using big scale industrial policy, public investment and targeted incentives to secure future production and technological capabilities.

The UK needs to be more strategic about where it wants to compete and how public policy can help businesses invest in those opportunities.

That means moving beyond a collection of individual announcements towards a sustained industrial strategy, with clear priorities, credible funding and measurable objectives.

 

The regions must be part of the growth strategy

One of the more significant aspects of the Budget is its commitment to fiscal devolution. Giving mayors a greater share of business rates revenues, expanding their role in economic development and allowing new local revenue-raising powers could strengthen regional accountability. This is welcome and long overdue.

This is particularly important for the West Midlands and other parts of the country where industrial capability, skills and innovation coexist with persistent economic inequalities.

For too long, UK economic policy has been excessively centralised. Decisions about investment and infrastructure have often been made without sufficient understanding of local economic conditions. Meanwhile, regional leaders have been expected to deliver growth without having the powers or resources to do so.

Greater devolution could help change this. Mayors and local institutions are often better placed to identify opportunities in transport, skills, housing, business support and industrial development.

However, devolution must mean more than allowing local leaders to manage limited budgets. They need predictable, long-term funding and meaningful discretion over how resources are used. Areas without mayors must not be left behind.

The government should also recognise that regional growth requires coordinated investment. Transport links, technical education, research institutions, industrial sites and business finance need to work together. Simply allocating money to individual projects will not necessarily create stronger local economies.

Here in the West Midlands, the priority should be to build on its automotive and advanced manufacturing base while supporting the transition to electric vehicles, developing new technologies and strengthening local supply chains. That requires a partnership between central government, regional institutions, universities, manufacturers and smaller suppliers.

Devolution can help make that possible, but only if it is backed by resources and a clear economic purpose.

 

The missing European dimension?

There is arguably another major issue that the Budget does not adequately address: Britain’s economic relationship with the European Union.

The UK remains deeply integrated with European markets, supply chains and investment networks. Yet Brexit has introduced additional barriers and uncertainty for businesses trading across the Channel. For manufacturers, particularly in the automotive sector, these issues interact with high energy costs, international competition and the expensive transition to electric vehicles.

The government has taken steps towards closer cooperation with the EU, but the economic case for reducing unnecessary barriers remains compelling. Better regulatory cooperation, more predictable trading arrangements and progress on practical issues affecting manufacturers and exporters could help improve the investment climate.

The wider political debate has also begun to reopen under Burnham’s premiership. The question should not be whether to refight the arguments of 2016, but whether the current relationship serves Britain’s economic interests.

If the government is serious about growth, it should be prepared to examine the available options pragmatically, including closer alignment where the benefits outweigh the costs.

A stronger relationship with Europe would not, by itself, resolve Britain’s productivity problem. But continuing to treat the consequences of Brexit as politically untouchable would unnecessarily restrict the range of policies available to improve trade, investment and economic performance.

 

Defence, technology and the role of the state

The Budget also reflects the growing demands on government arising from geopolitical instability. Defence spending, artificial intelligence, energy security and critical infrastructure all require substantial investment.

The additional backing for public investment institutions could help mobilise private finance and support companies operating in strategically important sectors. This is potentially significant because Britain has often struggled to translate research excellence into commercial success and domestic production.

However, the government must be clear about what it wants public investment to achieve. Public finance should help overcome identifiable barriers, support innovation and crowd in private investment, rather than simply subsidising activity that would have happened anyway.

The same principle applies to AI and data centres. Investment in digital infrastructure can support growth, but it must also be assessed against its demands on electricity, water, land and local infrastructure. The benefits should extend to the communities hosting these facilities.

The government’s commitment to defence investment also needs to be connected to domestic industrial capacity. Where appropriate, procurement should support innovation, skilled employment and resilient UK supply chains, and critically dual use technologies, while delivering value for money.

This is not an argument for protecting every domestic producer regardless of cost. It is an argument for recognising that public spending can serve both immediate needs and longer-term economic objectives.

 

A cautious Budget: what comes next?

Healey’s first Budget is perhaps best understood as an attempt to stabilise the economic position while establishing some of the priorities of the new government. It offers useful household support, sensible reforms for some businesses and a potentially important shift towards greater regional fiscal autonomy.

But it does not yet amount to a convincing strategy for transforming Britain’s economic performance.

The central challenge is to move from short-term relief to sustained growth. That requires investment in infrastructure, skills, technology and industrial capacity; affordable and reliable energy; stronger trading relationships; and institutions capable of coordinating economic development across the country.

It also requires the government to be honest about the trade-offs. Defence, the NHS, social care, housing and the energy transition all place demands on public resources. Fiscal discipline cannot eliminate those choices. Nor can growth simply be assumed into existence through optimistic announcements.

Burnham’s government has an opportunity to establish a different approach: one that combines responsible public finances with a more active, geographically balanced and strategically focused economic policy.

The test will be whether the measures announced today lead to higher investment, better jobs, stronger regional economies and rising living standards.

For now, the Budget provides some breathing space. But Britain still needs a better plan to make that breathing space count.

Professor David Bailey works at the Birmingham Business School.

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John Clancy and David Bailey