Sep 23, 2026 · 16 min · 7 segments
On this week's Macrodose, James Meadway looks at the upcoming and first budget of continuity chancellor John Healey (0:32), and the Greens’ new economic policy, published and due for discussion at the…
Our first story is about John Healy's first budget as Chancellor on the 28th of October, and its increasingly straightened circumstances.
The headroom he inherited from Rachel Reeves, £24bn at the Spring Statement in March, has been badly eroded.
KPMG now estimates it at about £12bn, and Sanjay Raja, Chief Economist at Deutsche Bank, puts it at just £8.5bn, as reported by The Telegraph at the weekend.
Figures also released this week show government borrowing in the first five months of the financial year running £8.1 billion above the official forecast.
It is the gap between what the Office of Budget Responsibility says the economy and the public finances will do over the next five years or so, which is the period its forecasts cover, and the Chancellor's own fiscal rules.
The current set has been in place since Rachel Reeves arrived at the Treasury in 2024.
And to be clear about the terms, the deficit is the amount the government borrows each year, the difference between what it spends and what it takes in taxes.
The first, the stability rule, says day-to-day costs must be met by revenues so that the government only borrows to invest, as the phrase has it.
The second, the investment rule, says public sector net financial liabilities, which is a measure of government debt, should be falling as a share of GDP by 2029-30.
So the rules demand a certain path for spending, taxing and borrowing over time.
The difference between what Healy could do inside his own rules and what the forecast says he will do is the headroom.
When it is big, he has a lot of space inside his rules, according to the forecast.
The Treasury's thinking is that there should be plenty of headroom to deal with all the unexpected terrible things that might happen, which is fair enough on its own terms.
But what we have actually seen in the last few years is that really major shocks simply blow borrowing far past whatever the headroom was.
Before Covid, the Office of Budget Responsibility expected borrowing of £54.8 billion in 2020-21.
The pandemic was an exceptional period of expenditure over a long period of time.
It was followed by the energy price shock, which also involved an exceptional period of borrowing to cover household costs, £78.2 billion across 2022-2023 and into 2023-2024, on the Office Budget Responsibilities Estimate.
Either shock, on its own, was several times the £24 billion Rachel Reeves left behind in March.
Our first story is about John Healy's first budget as Chancellor on the 28th of October, and its increasingly straightened circumstances.
The headroom he inherited from Rachel Reeves, £24bn at the Spring Statement in March, has been badly eroded.
KPMG now estimates it at about £12bn, and Sanjay Raja, Chief Economist at Deutsche Bank, puts it at just £8.5bn, as reported by The Telegraph at the weekend.
Figures also released this week show government borrowing in the first five months of the financial year running £8.1 billion above the official forecast.
It is the gap between what the Office of Budget Responsibility says the economy and the public finances will do over the next five years or so, which is the period its forecasts cover, and the Chancellor's own fiscal rules.
The current set has been in place since Rachel Reeves arrived at the Treasury in 2024.
And to be clear about the terms, the deficit is the amount the government borrows each year, the difference between what it spends and what it takes in taxes.
The first, the stability rule, says day-to-day costs must be met by revenues so that the government only borrows to invest, as the phrase has it.
The second, the investment rule, says public sector net financial liabilities, which is a measure of government debt, should be falling as a share of GDP by 2029-30.
So the rules demand a certain path for spending, taxing and borrowing over time.
The difference between what Healy could do inside his own rules and what the forecast says he will do is the headroom.
When it is big, he has a lot of space inside his rules, according to the forecast.
The Treasury's thinking is that there should be plenty of headroom to deal with all the unexpected terrible things that might happen, which is fair enough on its own terms.
But what we have actually seen in the last few years is that really major shocks simply blow borrowing far past whatever the headroom was.
Before Covid, the Office of Budget Responsibility expected borrowing of £54.8 billion in 2020-21.
The pandemic was an exceptional period of expenditure over a long period of time.
It was followed by the energy price shock, which also involved an exceptional period of borrowing to cover household costs, £78.2 billion across 2022-2023 and into 2023-2024, on the Office Budget Responsibilities Estimate.
Either shock, on its own, was several times the £24 billion Rachel Reeves left behind in March.
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