UK budget set for limited giveaways as costs rise

British Prime Minister Andy Burnham's government is due to unveil its first budget on Wednesday, with analysts expecting limited giveaways as inflation and borrowing costs increase pressure on the public finances.

Burnham said Monday the budget would be about “breathing space for people, for businesses too” and would set out a funded path to meet Britain's NATO commitments.

Finance minister John Healey is preparing the tax and spending plans as the government tries to ease cost-of-living pressures and increase defence spending while keeping to fiscal rules. Labour has ruled out rises to income and capital gains tax, raising the prospect of spending cuts or other revenue measures.

James Wood, professor of political economy at the University of Cambridge, told AFP that the priority was credibility and a budget that clearly meets the fiscal rules, is fully costed and avoids large unfunded giveaways. He said government debt at around 94 percent of GDP left limited room for manoeuvre.

Healey is expected to use a windfall tax on banks to fund measures to help households with energy bills. Further measures could include extending a fuel-duty freeze and more targeted help for the poorest households, according to reports cited in the item.

UK annual inflation rose to 3.5 percent in September, helped by surging diesel costs. The government's fiscal headroom of £23.6 billion is expected to be reduced in an update published alongside the budget, as higher borrowing costs increase debt repayments.

The Office for Budget Responsibility is also due to publish its latest UK growth and inflation forecasts on Wednesday.