British Treasury chief Rachel Reeves said on Wednesday she would deliver her annual budget on Nov. 26, insisting the economy was not "broken" and that she would keep a grip on spending to help lower inflation and borrowing costs.
Britain is facing renewed market concern over its ability to keep its finances under control, helping push 20- and 30-year borrowing costs to their highest since 1998.
Government borrowing costs are the highest in the Group of Seven (G-7) advanced economies. So too is inflation, limiting the Bank of England's (BoE) scope to cut interest rates.
"Britain's economy isn't broken. But I know it's not working well enough for working people," Reeves said in a video message.
"We must bring inflation and borrowing costs down by keeping a tight grip on day-to-day spending through our non-negotiable fiscal rules."
The government also wants to press on with measures to boost growth and productivity, and Reeves wants fellow ministers to go further on planning reform and other deregulatory measures.
Reeves and Prime Minister Keir Starmer are struggling to meet mounting demands for spending against a backdrop of historically weak economic growth and pre-election promises not to raise the rates of major taxes.
Cuts are hard as the government gave long-term budgets for most departments in June and has pledged to keep raising pensions, while working-age welfare spending is under review, not due to report until late next year.
Setting out her plans for the year ahead will likely involve Reeves needing to find new sources of tax revenue in order to balance day-to-day spending with tax revenue by 2029/30.
Reeves had just under 10 billion pounds ($13.5 billion) of headroom to meet that target in March.
But economists expect she must now tackle a roughly 20 billion-pound shortfall, due to weak growth, high borrowing costs and U-turns on plans to cut welfare for the long-term sick and fuel subsidies for retired people.
The Resolution Foundation think tank – whose previous head, Torsten Bell, is now pensions minister and advises Reeves on the budget – estimated headroom had been reduced by 3 billion pounds from debt interest and a further 6 billion from abandoned welfare cuts.
"The Chancellor is already on track to miss her fiscal rules. With a growth downgrade also likely, significant fiscal tightening will be needed," the think tank's chief executive, former finance ministry official Ruth Curtice, said.
The announcement is likely to intensify weeks of speculation about tax rises – some of which has already weighed on business sentiment after concerns the budget could lead to higher levies on banks, gambling, or more expensive housing.
In last year's budget, Reeves raised taxes by 40 billion pounds – the biggest increase in over 30 years – something she has promised not to repeat.
The new budget will come alongside a twice-yearly update of growth and borrowing forecasts from the Office for Budget Responsibility (OBR), where there will be a focus on whether it lowers its unusually upbeat assessment of the outlook for productivity.
The timing of the budget reflects a legal requirement to give the OBR at least 10 weeks' notice and a desire by the government for the OBR to have time to assess if policy changes will boost growth and give the government reasonable notice before final budget decisions are made.
