Chancellor John Healey used an address to Labour members to deliver a Healey fiscal headroom warning: the government does not have the spending flexibility that Tony Blair’s administration enjoyed, and debt costs are now consuming money that could otherwise fund public services. The remarks, made at the Labour Party’s conference, came as gilt yields edged up on Monday morning amid fears of higher inflation and potential interest rate rises, pushing government borrowing costs higher at a delicate moment for the public finances.
Healey drew a direct contrast with the New Labour era. ‘The money New Labour had in the nineties is simply not there now,’ he told the audience. ‘Economic growth under Gordon was more than double the Tory years that followed. Britain has it harder now.’ He attributed the deterioration in the fiscal position to decisions taken by the Conservatives, which he described as ‘reckless’.
Debt costs crowd out spending options
Central to the Chancellor’s argument was the scale of interest payments on government debt. The government is projected to spend about £110bn this year on debt interest payments, Healey said, framing that figure not as an abstraction but as a direct cost to public services. ‘It’s the money that we can’t spend on the NHS, on schools, on housing, on social care,’ he said.
The trajectory is not improving. According to the Office for National Statistics, interest payable on central government debt reached £16.4 billion in June 2025, a rise of £8.4 billion compared with June 2024. Looking further ahead, the UK Parliament Lords Library forecasts that debt interest spending will climb to £137bn, equivalent to 3.8% of GDP, by 2030/31. Healey noted that debt payments have already risen to exceed the defence and justice budgets combined.
On borrowing more broadly, the picture is mixed. The Resolution Foundation notes that the UK borrowed £132 billion in 2025-26, which is £20 billion below the £152 billion borrowed in 2024-25. The same think tank has also estimated that the government’s fiscal buffer, measured by the surplus factored into the current budget in the third year of the forecast, could fall to as low as around £5bn once public sector pay increases are taken into account. A downgrade on migration forecasts could cost the government further billions, according to reports in The Times.
Business community voices concern over further tax rises
Monday was also the Labour Party’s Business Day, and the Healey fiscal headroom warning did little to settle nerves among company representatives in Liverpool. Lobbyists and business chiefs were seeking signals on whether additional tax increases were on the way.
One industry figure present told City AM that Treasury officials had indicated there would be less focus on the City than under Rachel Reeves, and that relations were back to a ‘norm’ under Healey. Reeves was described as ‘unusually’ interested in the financial services sector relative to her predecessors. A City source also said they believed Lucy Rigby was a ‘champion’ for financial and professional services. However, there was concern that the Prime Minister had aligned more closely with trade union and small business interests over larger corporations and wealthy individuals.
Shevaun Haviland, chief of the British Chambers of Commerce, responded to Healey’s speech with a direct warning. She said tax hikes would ‘kill the golden goose’, destroying the growth the government is relying on. Haviland argued that businesses had already been forced to ‘find the efficiencies’ following the £25bn employer tax increase introduced under Reeves, while the government had not delivered equivalent reform of its own expenditure. She said the government still had work to do to win back business confidence.
Welfare reform and the limits of fiscal manoeuvre
Healey’s room for manoeuvre on spending cuts is constrained. Savings and productivity improvements already pencilled in by Reeves have been described as ‘ambitious’, and welfare reforms are not expected until after the Budget. Even so, Healey sought to make changes to disability payments and youth unemployment a central theme of his address, and announced a new fund for workplace training to be delivered by trade unions, drawing sustained applause from Labour members and union officials in the room.
The response from the opposition was blunt. Shadow chancellor Andrew Griffith MP said Healey had ‘failed to say how he was going to tackle our out-of-control welfare bill, increase defence spending to three per cent of GDP, scrap Labour’s fuel duty hike, or put forward a credible plan to get our economy growing and young people into work.’ Griffith added that Healey had ‘dedicated time to praising Rachel Reeves.’ The Budget will be the first real test of whether the Chancellor’s fiscal headroom warning translates into a coherent set of choices.
